Yahoo Strategy Ahead of Alibaba IPO

Yahoo retains a 22.4% stake in Chinese e-commerce giant, Alibaba Group Holding. Yahoo’s stock climbed by over 5% on news of  Alibaba’s expected IPO price range of $60 to $66.

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Monday’s trading was a massive price range with plenty of volume ($40.34 to $41.81). This means there are plenty of investors jockeying on both the long and short side of the stock. $YHOO also broke above its upper band of Bollinger Band and traded over 70 in Relative Strength Index (RSI). Both of which indicate an overbought condition.

Does the Alibaba IPO mean an abrupt end of investor fascination with $YHOO? In order to understand better we can look at what happened each time in the last year when $YHOO traded aggressively into overbought territory (above Bollinger Bands and RSI over 70) .

Sept 2013-Sept 2014:

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Sept 2012 – Sept 2014:

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Look closely at the Alpha Curves and Statistics table. The stats are a skewed higher in the most recent data but both sets of dominant patterns indicate $YHOO’ stock price is more likely to continue to rise in the face of overbought conditions, at least temporarily.

What conclusions can be drawn from this data? In one sense, it’s hard to make the case that $YHOO is a good buy up here after such a long run and after such a central catalyst to the narrative has passed. However, if you are considering betting against $YHOO and going short, the data shows that it rarely pulls back instantaneously in reaction to overbought conditions. More often than not, it continues in the direction of momentum for at least a couple of days. Give it some room to run or room to breath depending on your position.
Play around with some of the data on https://www.marketmemory.com/