Here's Why I Want To Buy Yahoo!

JC Parets
February 3, 2016

Is there anyone left out there who wants to buy Yahoo? I don't see any.

Talk about terrible sentiment in a stock. Anecdotally that's obvious, but our data suggests the same thing. Also, does anyone have anything nice to say about Marissa Mayer? All of this really gets my attention and has me thinking. Can Yahoo seriously mean revert here? I think there's a good chance.

Here's the trade:

We're looking at a monster rally in Yahoo shares where we saw close to a 400% rip in the stock from 2011 to 2014. That's a huge move. We are currently approaching the 61.8% Fibonacci retracement of that move, which is what we in the industry call, "normal":

2-3-2016 2-06-28 PM yhoo

As you can see in this chart, it is also where we saw some support and resistance, many shares exchanging hands if you will, back in the 2nd & 3rd quarters of 2013. There is market memory here. It is not a coincidence that this is where the market found support (buyers) last September.

From a risk/reward perspective, I think this is very much skewed in favor of the bulls. What we are seeing here in this chart is price below an upward sloping 200 week moving average. I love that. Also, look how deeply oversold momentum got at those September lows (14-week RSI). I believe this "lower low" we're currently seeing in price will be met with a higher low in momentum. If this is indeed the case, I think it can be the catalyst to really send shares flying:

2-3-2016 2-20-54 PM yahoo 2

Now, the most important part is the execution right? We can all come up with silly stories and all that, but the market doesn't pay you to pretend to be mother goose. We don't tell stories here, we try to make money in the market. The risk/reward is simple. We want to own this all day if prices are above the September lows. That's it. We don't have to make this complicated.

I think we own this very aggressively against the September lows for a mean reversion towards the December highs. We are talking about close to a 30% move in the common stock, and obnoxiously more in the options market. I believe the risk is very well defined as we do not want to participate on the long side if we are below the September lows:

2-3-2016 2-28-41 PM yahoo 3

To me it's that simple. If momentum does not hit oversold conditions on this daily chart above, that would be even better. I am a seller near the early December highs, which was support for the last 15 months.

It's a text book sell the rumor buy the news scenario. They got crushed after the bad earnings that everyone saw coming. My abuela called me last week telling me yahoo was going lower. So word is out folks.

I like it long

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Tags: $YHOO

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