YHOO Again For Tech!

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After a month long pause in stocks, led interestingly enough by the Dow Jones 30 Index, the market looks poised to rally to across the board new post crisis highs once again.

Note: The Dow is weighted by share price not market capitalization, so the expensive stocks have a disproportionate impact on the index as a whole. Therefore, IBM above $200 compared to Microsoft at $32 has nearly seven times more impact on the Dow.

Surprising quarterly earnings results with over 70+ percent of reporting S&P 500 companies exceeding expectations have provided support and strength in equities. Thus, rising corporate profits have smoothed over global concerns and provided a catalyst for the continuing uptrend.

The tech sector and Apple provide the leadership for this last post-December rally run. A much-expected healthy profit taking unwind in AAPL after a move from $360 to highs at $640 had put stocks--and technology especially--on the defensive during April.

That 75% December to April “i-maker” rally was an eye opener for the sector.

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Technology viewed by the QQQ’s jumped 28% during that same period and skyrocketed to the highest level in more than a decade. A cycle through recovery has put this widely traded play on the radar for another possible bullish setup.

The OVI Indicator
The OVI measures options transaction data and plots it as a simple line that bobs up and down between 1 and -1.

When the line is positive, we’d be more inclined to focus on bullish chart patterns; and when it’s negative we’d focus the more bearish chart patterns.

We only use the OVI in combination with a chart pattern such as a consolidation or flag. We do not use it in isolation.

The positive OVI--confirmed with a move above recent highs at $68.55 resistance-- provides a high probability for QQQ as a bullish candidate.

As a target, the 4.5 drop to the recent base lows at 64 provide a measure for the upside objective on a breakout rally. This technique projects a healthy 6.5% rally in the QQQ’s after new highs are marked.

An individual technology stock that does not have the benefit of diversification like the QQQ’s offers possibly much more reward, according to our Quiet Money Indicator.

YHOO seems like its best days may be behind it, while a long narrow price range sets the ground for price breakout. A trading range between $16.50 and $14 is approaching seven months as the OVI has maintained a bullish bias since March.

After making a base during the month of March, YHOO formed a bull flag that reversed higher after retracement to the original breakout point. The run above $15.70 this week was an entry candidate on the long side.

20% Potential Bump

A breakout of the prior mentioned larger channel targets a $2.5 YHOO move, $16.50 top -$14 support, with an objective of $19.

Would a more conservative technology in the QQQs impact its performance? Probably not. The reward for YHOO’s may be greater as the OVI tells us those insiders who know best are positioned for success.

Remember, Plan your Trade and Trade your Plan!

Guy Cohen

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