The Support Shelf for Yahoo!, Inc. (YHOO)

07/22/2010 12:01 am EST


Corey Rosenbloom

Founder and President, Afraid to Trade

Earnings from Yahoo!, Inc. (YHOO) disappointed investors yesterday morning, sending shares down to the critical “line in the sand” support at the $14.00-per-share level.

Let’s pull back the perspective on YHOO’s stock to note the large-scale rounded reversal, or arc pattern, along with the key level to watch on the weekly chart:

Click to Enlarge

First things first, the key price to watch is just under $14.00 per share, which represents numerous price lows as well as two price highs (early 2009) over the last year.

I call this pattern a “support shelf” such that if sellers break the massive support line at $14.00 per share, it would be a game changer in the stock that would likely send shares lower to test prior support levels, including the eventual potential for a return to the $10.00-per-share level over time.

I talked recently on my blog about a very similar support shelf in Bank of America (BAC), which ironically rests at $14.00 per share.

Beyond the $14.00 support level, investors (and traders) should be aware of the clear arc formation, which I like to call a rounded reversal pattern.

It began off the November 2008 price low and continues to “arc” over to this day. If price completes this pattern, then it suggests a return to the arc low from November.

But, as of this writing, shares remain at the key support level, so all is not quite gloom and doom from a price chart perspective.

Let’s actually zoom in on the daily structure to see the short-term support/resistance levels to watch:

Click to Enlarge

Technically, the short-term multi-month trend of Yahoo’s stock remains in a sideways “flat” trading range between $17.50 as resistance and $14.00 as support.

If buyers are unable to overcome sellers here—literally right where we are now in price—then we could see a downside break from the range and the beginning of a downside move, as hinted from the weekly chart (on a break of $14.00).

It’s not often that you can capture a stock literally on the precipice of bull and bear, but that’s where the general market is right now, so it is unsurprising that many stocks are showing similar “make or break” support levels… and an abyss underneath.

By Corey Rosenbloom, trader and blogger,
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