If you've been paying even the slightest attention to financial news lately, you probably already know that investors were tremendously enthused that Jerry Yang of Yahoo! Inc. is stepping down from his CEO post. In fact, the stock surged 8.7% by the time the closing bell rang on Tuesday. Judging by yesterday's option volume on YHOO, it seems that speculative investors were quick to join in the celebration, as well.

On the International Securities Exchange (ISE), traders on Tuesday bought to open 7,756 calls on YHOO, compared to just 3,154 puts. The stock's single-day call/put ratio was a healthy 2.46, with bullish bets more than doubling their bearish counterparts.

A similar bias was displayed by YHOO's option volume yesterday on the Chicago Board Options Exchange (CBOE), where traders purchased 6,872 calls and 3,238 puts. As with the ISE data, these figures reveal that investors preferred calls over puts yesterday by a wide margin.

Following Tuesday's surge in call-buying, YHOO's Schaeffer's put/call open interest ratio (SOIR) pulled back today from its recent perch at 0.46. This morning, the SOIR arrived at 0.44, marking its lowest point since the October options series expired over a month ago.

However, Yahoo shares have reversed course sharply following yesterday's surge. The stock is down nearly 17% this afternoon, and earlier fell to a new low of $9.24 -- marking its lowest price since March 2003. It seems that Yang's going-away party wrapped up early when Microsoft (MSFT) chief Steve Ballmer asserted today, "We are done with all acquisition discussions with Yahoo." (The news has also sparked a flurry of option activity on MSFT; click here to listen to Andrea Kramer's report.)

My colleague Nick Perry seems to have hit the nail on the head with this blog posting yesterday on the Yahoo relief rally. He observed, "Shares of Yahoo have a tendency to stage quick runs that gets people excited. However, those have so far just been bounces amid a longer-term downtrend."

Throughout that downtrend, nearly all of YHOO's rally attempts have been rebuffed by the stock's descending 120-week moving average. This long-term trendline even capped the equity's gains following Microsoft's buyout bid earlier this year.

Considering the stock's fundamental and technical challenges, there's still a surprising amount of optimism flooding Yahoo's sentiment backdrop -- which suggests more downside could be in store during the near term.

First, yesterday's surge in call volume wasn't exactly an anomaly. During the past 10 trading days, option players on the ISE have purchased an average of 3.46 calls for every put on YHOO. This ratio ranks near the middle of the stock's annual range, which suggests that traders generally prefer bullish option bets on this slipping stock.

Meanwhile, YHOO's SOIR is docked in the 33rd annual percentile, as short-term option players have been more bullishly aligned toward the shares just one-third of the time in the previous year. With the stock exploring multi-year lows -- and showing no signs of rebounding -- it seems an odd time for optimistic hopes to be raised.

Eventually, these relentlessly optimistic investors may have to face the facts. The technical picture is grim for YHOO; it has been ushered lower by its 10-week moving average consistently since May, and this trendline resistance has shown no signs of weakening as it drops through the 14 region.

The scenario could get even uglier if YHOO extends its stay in single-digit territory. The 10 level acted as round-number resistance from early 2001 into the first half of 2003, effectively keeping the shares stifled for 2 years. A weekly or monthly breach of 10 could allow this region to resume its previous role as resistance. If the stock does violate this critical level, potential support lies as far south as the 5 neighborhood.

Downgrades are also a possibility, even though many analysts already maintain a skeptical stance on YHOO. Zacks reports 7 bullish holdouts that maintain a "strong buy" or "buy" opinion, while the average 12-month price target is $16.11, according to Thomson Financial. This consensus estimate represents a premium of 39% to yesterday's close -- and let's not forget that Tuesday's settlement price was inflated by a single-day rally of nearly 9%. Any downgrades or price-target cuts could draw additional selling pressure to this beaten-down tech stock.

In short, YHOO is a stock to avoid, with or without Yang.

Did you know you can check out my latest SR.com headlines just by visiting your inbox? To sign up for our email alert service, simply click here and sign in with your Schaeffer's username and password. On the alerts page, select "author" from the first drop-down box, choose your e-mail alert frequency, and type "Elizabeth Harrow" into the third box.