Many traders and investors are aware that there is one way of participating in the Alibaba , and its through Yahoo! Inc. ( YHOO ). However, the fact that many people are aware of this makes the trade even scarier. As experienced traders know, whenever the general public is drawn into an of this magnitude, smart money will stay away from it. Instead, smart money will trade the reaction.
Allow me to elaborate on this trade...
Last year Yahoo! Inc. ( YHOO ) put in a low of $18.89, earlier this year it hit a high of $41.72. Looking back further in time to 2011, Yahoo! Inc. ( YHOO ) was trading as low as $11.09. That's when the smart money got in ahead of everyone else, and off course, before our neighbors, friends or even the different media outlets even mentioned Alibaba's .
Let's take a look at Yahoo! Inc. ( YHOO ) performance this year. The chart below shows us that Yahoo had a small rise for the first few days of the trading year. Since then, the stock has done nothing but drift lower. It has now put in place lower highs and lower lows, which is a signal for the equity going forward.
Why do you think this price action has been occurring? Isn't Alibaba's supposed to be one of the greatest, biggest and most promising IPO's to hit the market in a while? Well, while media and Wall Street hype suggest that Yahoo's stock should continue to sky rocket as they will receive billions once Alibaba finalizes. As technical traders, we know that this will not be the case simply by looking at Yahoo's price action shown on the charts. This is already failing, we do not need to see financial documents from Alibaba nor Yahoo . Remember that the charts always give us a sneak peek into the future, and the future does not look bright for Alibaba, nor Yahoo!
Yahoo! Inc. ( YHOO ) is downtrending as it is now trading below the 20, 50 and 200 day moving averages. This tells us that the easy money has already been made. Yahoo's, price action is weak and the stock has a very good chance over the next few months to trade as low as $22.75 per share. This is not a good sign for Alibaba's .
Smart investors must avoid the hype surrounding these two companies. However, this does not mean that there won't be buying opportunities for Yahoo . There will be many bounces along the way and as savvy and well informed technical traders, we will trade this or any other equity both on the long and short side. But the longer term outlook for Yahoo! Inc. ( YHOO ) as well as Alibaba is negative, and again, you must not get drawn into the hype surrounding this and other IPO's.
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