False Breakout in Yahoo?

Ahead of the Alibaba IPO we’re seeing a possible false breakout develop in YHOO. Long term (15-20 year) resistance is in the $44 area and we are back to that level as of this week. Currently, we’re seeing a pickup in volume that is possibly signaling a reversal lower may be near. For a stock to have such high volume and price to move sideways, and in this case lower, is not a bullish sign IMO. Additionally, momentum is not confirming these new highs and price is extended from its intermediate term trend, as quantified by the 50 day SMA. Additionally, today in the options market we saw a relatively large risk reversal trade put on ~3500 times as the trader sold the Oct 47 calls to help finance the purchase of a 42-37 bear put spread.

All these factors combined, along with the hype of the BABA IPO tomorrow could lead to one heck of a false breakout. Bulls do not want to see the stock close below this $41 or things could get ugly.

YHOO

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