CNN News just reported that current Yahoo! CEO Jerry Yang will be stepping down and his replacement will be named soon.  Let’s review this news and look at the current and past charts of Yahoo stock.

From the CNN article, Yang stated, “”I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation,”

After the replacement is named, he will then be known as “Chief Yahoo”.  Yang founded Yahoo in 1994 and has grown into the #2 most popular search engine, eclipsed only by rival Google (GOOG).

This transition is not unexpected, and the news was greeted with cheers by some.  Technology analyst Rob Enderle declared “The shareholders were ready to pick up pitchforks and torches.  If Jerry wasn’t a founder, he already would have been gone months ago.”

Only a few months ago, Microsoft (MSFT) CEO Steve Ballmer offered to buy Yahoo for $33.00 per share, an offer CEO Yang declared as “too cheap” for Yahoo – he demanded at least $37.00 per share, a figure Microsoft was unwilling to pay.  Many shareholders were stunned as Yang refused the offer, seeing Yahoo (YHOO) shares surge then plunge… and now shares currently (as of this writing) trade just above $10.00 per share (which will change as we face Tuesday’s market open certainly).

The CNN report hints that Yang’s “tenure as CEO is unlikely to be remembered fondly by shareholders….”  Perhaps that is an understatement.

Let’s view the weekly and then daily charts to see the roller coaster ride Yahoo (YHOO) investors have endured recently.

Yahoo (YHOO) Weekly Chart:

I’m actually going to take off the ‘technical analysis’ hat and focus on the initial Microsoft offer of $31 per share in February 2008 (later raised to $33), Yang’s refusal of this more than generous offer (the stock was trading beneath $20 per share at the time of the offer), and the subsequent (recent) share price plunge as a result of Microsoft (MSFT) withdrawing the offer, and talks with Google failing.

What might have happened had Yang and the board accepted the $33.00 per share deal?  Investors and historians might look back and proclaim holding out to be an expensive $4.00 mistake.

The offer was withdrawn in May 2008 and Yahoo stock has never even remotely looked back from those levels near $30.00 per share.

Let’s take a brief look at the damage that has occurred since May 2008.

Yahoo (YHOO) Daily Chart:

Bear in mind, technology stocks across the board including Google (GOOG), Apple (AAPL), Baidu (BIDU), Research in Motion (RIMM) and many others have suffered greatly in the 2008 ‘bear market’ declines as the US and global economies deal with recessions.  It’s absolutely unfair to attribute all losses in Yahoo stock to Mr. Yang’s decision – I’m being facetious to do so.

Nevertheless, the ‘price picture’ or chart of Yahoo on the daily timeframe is a classic text-book example of a downtrend, with key moving averages serving as overhead resistance and volume accelerating as price continues to move to new lows.

I’d expect a pop in shares as this announcement is discounted into the market on Tuesday, but one can never be certain which way shares will trade on the news.  This market has shown many times that classic expetations have been off-base more than a few times as price continued to slide to new lows on various stocks and the broader indexes.

Continue to watch these stocks mentioned above and how they trade on this news – and what the effect (if any) may be on the broader market tomorrow.

It’s quite rare to get a reading in the ADX (Average Directional Index) of less than 10, but the DIA 5-minute chart is currently showing compression such that the ADX value is 8.77.  Let’s look at this and see what it might mean.

DIA 5-min chart:

In StockCharts, the ADX actually displays the + and – DMI (Directional Movement Indexes) as the green and red lines in the bottom panel indicator.  Ignore those for a moment and focus on the average, or the Black Line traditionally known as the ADX.

A Low ADX represents market compression, while a high ADX represents market expansion and is based on the principle “Price alternates between range compression and expansion.”

Traditionally, when the ADX is low, we need to be looking for an expansion move to occur, and also we need to avoid using moving averages for trading decision assistance.  Also, we need to eliminate usage of the 3/10 Oscillator because it is giving no discernible reading.  I highlighted that to show that you receive no trading signals off the 3/10 either.

I wanted to highlight the current chart with 30 minutes left in the trading day because I wanted to show a screen cap of this action as it was happening and place up a quick comment.

Basically, in these conditions, traders want to stand aside (not trade) but wait for a breakout of consolidation to enter a trade to play for perhaps a large relative target.  We don’t know which way price will expand, but we can have our guesses.  You might even want to place a bracket order outside the ‘rectangle’ that has formed about the $84 and $85.50 level.  Either way, it’s best not to beat yourself up trading within this narrowing range.

Watch this closely into the close.  Markets can’t stay ‘balanced’ or rangebound for ever.

What a better way to start your week than browsing around the news and blogosphere, courtesy NewsFlashr? Here, I wanted to highlight selected blog or news posts that you may find interesting that might help you in the upcoming week.

The Big Picture tries “DECONSTRUCTING THE FINANCIAL CRISIS (so far)” which is a rough timeline of key events.

KWaves.com is a site I recently came across that details the Kondratieff Long-term Wave with charts and information.

Brian Shannon of AlphaTrends.com discusses his emphatic belief that Risk Management is the #1 goal.

Bill Luby at VIX and More makes a Prediction: Direxion Triple ETFs Will Revolutionize Day Trading. He also lists the new ETFs so you can use that as a reference as well.

Chris Perruna discusses various charts and ETFs in Health Care and Pharmaceutical Bottom?

Always providing us with information-packed posts, “Gaming the Market” shows and discusses Three Great Banking Documentaries.

StockTradingtoGo discusses brief principles in Understanding Economics, Trade Gaps and Deficits.

FundMyMutualFund writes an ambitious article discussing the potentials for the next 6-monts to a year in the future in November 2009 Thoughts/Roadmap.

Dr. Steenbarger of TraderFeed introduces new concepts regarding a novel concept in his series on creativity in trading:  The Role of Creativity in Trading and Conflict and Creativity in Trading Performance.

Have a safe week as best you can – keeping your focus on risk-management in the week ahead.

Not too long ago, I evaluated the S&P 500 in terms of a possible Elliott Wave Interpretation which is still playing out as anticipated according to basic Elliott Wave Principles.  Let’s update that count and see if we can glean any information from the current structure.

S&P 500 Possible Elliott Wave Count – Monthly Structure:

Let me put in the disclaimer that I am NOT an Elliott Wave expert, nor do I claim to be.  I’m attempting to apply the principles I have learned and understand from basic Elliott Wave interpretation as applied to real time charts as best I can.

That being said, the larger structure shows that we could be experiencing an “ABC” corrective wave which is either forming an “Expanded Flat” (because the “B” wave exceeded the high of the previous Wave 5 in 2000) or we are experiencing a slightly irregular Zig-Zag pattern, with the “B” wave (in both instances) being a complex corrective wave.

In either scenario if they are correct, the larger structure hints that we will – at a minimum – retest the 2002 lows and are more likely to exceed them by some measure – though both give different targets as to how much (to what magnitude) we’re likely to exceed the 815 *closing* price low (though the actual low was 775 on the S&P 500).

Remember, that if this structure is correct, Wave C is expected to unfold in a five-wave impulse down.  Let’s pull the perspective in to the recent weekly chart.

S&P 500 Possible Elliott Wave Count – Monthly Structure:

I’ve darkened the previous “Wave 5″ action so we can focus on the current possible structure unfolding.

October 2007 marked the ‘high’ and that is where I chose to begin the potential 5-wave impulse down.  Others can chart their Elliott counts differently.

Wave 1 often unfolds in a fractal 5-wave impulse itself, which is what I have shown here.  Wave 1 terminated in March 2008 before rising in an “abc” corrective pattern to complete corrective Wave 2 (which often unfolds in three waves) in May 2008.

Wave 3’s are “Elliott’s Dream Waves” and this current wave 3 – as I have chosen to label it – indeed fills that desire.  This is because third wave impulses are often violent, volatile, and contain the ‘heart’ of the entire pattern – and of course arguably offer the best trading opportunities.

I have us currently STILL in Wave 3, though it is finally coming to a welcome close.  Fractal wave 1 took us down to the July lows, corrective wave 2 took us up to the August highs… and then bloody fractal wave 3 itself subdivided into a minor Elliott 5-wave impulse that completed with the October lows.

I highlighted that development a couple of times on the blog, calling for a fractal wave 4 to occur which completed as price attempted a test of 1,000 before failing down to the current structure:  Fractal Wave 5 which is expected to be the terminus of the rather remarkable Wave 3 structure from 1,400 to 800 (or below).

Remember this is one interpretation of the current count, and I am lending my opinion on the structure. Consult your own analysis for your own conclusions and trading decisions.

IF this wave count is correct, then we could expect to see a little more downside as fractal wave 5 plays itself out and then will likely see some sort of major corrective Wave 4 that could take us all the way to S&P value 1,200 IF bulls can push us to those levels.  That would coincide with the seasonal “End of Year” tendency, better known as the “Holiday” Rally or “Santa Claus Effect” rally (tendency for equity prices to rise into year’s end).

After that, it’s “look out below” as Wave 5 might take hold into the new year and drive us back down to the 2002 lows or beyond, which would fulfill the possible Corrective ABC pattern shown above on the Monthly charts.

As with any Elliott Count, it’s best to follow it day-by-day (or week-by-week) and try not to get too rigid with the interpretation.

Guard your capital whatever your interpretation may be.

With a wildly volatile week behind us, let’s step up the perspective and see if we can glean any information from the S&P 500’s weekly chart.

S&P 500 Weekly Chart:

Don’t we wish we could turn back the time to October 2007?  Alas, we have to take what we’re given in the market and do the best analysis we can with the information we have.

In terms of the top-down structure, we are in a clear weekly downtrend as evidenced by a series of lower highs and lower lows, which are confirmed by the “most bearish orientation possible” of the key moving averages (the 20 is beneath the 50 which is beneath the 200).  One should not look to get aggressively net long until this structure changes.  The ‘trend’ path of least resistance remains to the downside.

That being said, it ‘feels’ or seems like we are due for a (however brief) counter-trend retracement perhaps to test eventually the falling 20 week EMA, which would be an eventual target (though it clearly won’t happen next week unless something radically changes).  Notice how the market ’swings’ from up to down in relatively stable ’swings’ (for lack of a better word).  It almost feels like a rhythm you can trace out and measure.

This rhythm was evident and stable until the October 2008 market drop, when the downswing became so exaggerated and intense that the market made a near record percentage loss in a singular month.    Right now the ‘rhythm’ seems to be indicating an upswing (counter-trend retracement) is in order but is by no means guaranteed.

The momentum oscillator has registered an extreme new momentum low, registering beneath -150 last month which was quite remarkable (an indicator value exceeding that of the entirety of the 2000-2003 bear market).  The oscillator measures the difference between a 3 and 10 week EMA, so to have an S&P value of -150 is quite extraordinary.

The red and green arrows I’ve drawn represent swings that have come into ‘moving average support or resistance,’ particularly the case in August 2008 where price came into strong “confluence” resistance.  Pay close attention to price when it interacts with key moving averages, especially when they come into contact with “confluence” or cross-over zones of key averages as well.  Those can sometimes be major turning points in a market that are difficult to anticipate using other indicators.  Pay even more attention when candlestick patterns (such as dojis) form at these areas.

What’s up next?  There may be more risk short-term by being short the market, particularly if we do rise eventually into a counter-swing back up, but at the same time, do not underestimate the power of a pervasive down-trend.  “Surprises” often happen in the direction of the prevailing trend, but shorts must also be on guard against stunning short-covering rallies (short squeezes) such as we saw on the daily frames last week.

Regardless of your strategy, do be careful in your tactics and keep a close eye on your money management techniques and strategies.  Ultimately, those might be what save many traders in this uncertain environment.