Yahoo, Inc. (YHOO) reports earnings on Tuesday evening, with analysts expecting 14-cents per share profit on $814-million in revenues. Dow component Verizon Communications, Inc. (VZ) recently amended the terms of its agreement to buy the company’s core Internet assets, reducing the acquisition price by $350-million due to increased liabilities arising from a series of high-profile data breaches. The transaction is expected to close in the next two to three months.
YHOO stock has gained more than 20% so far in 2017, with market players taking advantage of the deal’s growing optimism. VZ has struggled over the same period, falling more than 9% even though the D.J. Industrial Average has risen more than 4%. Both companies could be exposed to broader market forces between now and the finalization date when what’s left of Yahoo abandons its once iconic brand name.
YHOO Weekly Chart (2006–2017)
The stock split four times into the 2000 all-time high at $125.03, posting on the second trading day of the new millennium, and sold off into single digits during the Dot.com bear market, A broad recovery peaked in the low-40s (blue line) in 2006, ahead of a second descent into single digits during the 2008 economic collapse. It completed a round trip back to 2006 resistance in 2014, ahead of a breakout that added just 10-points into the November 2014 high at $52.62.
It got cut in half into the February 2016 low at $26.15, ahead of a multimonth bounce that just reached resistance at the .786 Fibonacci selloff retracement level. A reversal is likely at or around this price zone, with the decline targeting the 2006 high and unfilled January 2017 gap between $42.50 and $43.50. Further downside is unlikely, at least in the short-term, because sellers will be hesitant to press their bets ahead of the acquisition.
Traders looking to play this week’s earnings report should watch a 2-month rising channel, with support at $46 and resistance at $48. A breach at either end is likely to trigger momentum signals, with a breakout reaching $50 while a breakdown drops toward the gap. It will take a solid buying thrust above the round number to clear Fibonacci resistance and set up a test at the 2014 high.
VZ Weekly Chart (2006-2017)
Verizon reports earnings on Thursday, April 20. The stock rallied strongly in the 1990s, posting an all-time high at $64.75 in September 1999, just three months ahead of its future paramour. It sold off into 2002, finding support in the mid-20s while the subsequent bounce lagged broadly positive action during the mid-decade bull market. That rally ended at the 50% bear market retracement in the low-40s in 2007.
The subsequent downtrend found support at the 2002 low in October 2008, ahead of a triangular basing pattern that failed to produce significant upside until the second half of 2010 when the stock broke out and entered a strong uptrend. The advance continued into the 2013 high in the low-50s and gave way to an intermediate correction that ended in the upper-30s during the August 2015 mini flash crash.
The stock returned to the 2014 high in the middle of 2016 and broke out, but aggressive sellers took control immediately, generating a failure swing that could signal a long-term double top. The contested level aligns perfectly with the .786 retracement of the 1999 into 2008 downtrend, adding weight to a technical argument that the stock has already posted the highest high for this bull market cycle.
The Bottom Line
Yahoo and Verizon report earnings this week, with both companies now exposed to broad market forces after finalization of their troubled fiscal union. YHOO needs to trade above 50 after earnings to attract even greater buying interest while VZ is likely to continue choppy action around the same price, following 2016’s failed breakout.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>