Reportedly, Yahoo stands to rake in $6 billion from the Alibaba IPO. Smart investors have been lining up in anticipation for months, rallying shares from a $33 low to more than $42 a share.
New traders are attempting to push in now, too… after the run.
But there’s a problem.
Yahoo is now overbought, having over-extended. Take a look at RSI and MACD. Both have moved too high, too soon. Both need to revert to average at some point.
Now take a look at MFI. It’s sitting at its 80-line, over-extended.
Each time it reaches 80, look at what it, MACD and RSI are telling us. It’s overbought, in desperate need of reversal.
Any one that attempts to buy in now risks getting burned from a sell the news and blow off top reaction. The better bet is to short the Yahoo stock, and ride it down. Excitement about the $6 billion may have been priced into the stock on the run from $33 to $42.80.
Now add in our other indicators to confirm trend. Watch what happens.
Not only is YHOO stuck at the upper Bollinger Band, over-extended, Williams % Range is overbought, as well. We also have a massive gap in DMI, which needs to revert to average at some point, too.
The better bet is to short the YHOO stock here or buy a put option on it… and wait for correction. We’re recommending that you buy to open a small position in the YHOO November 2014 42 put option up to $3.25.