Yahoo Recent Divergence Consolidation and U-Turn

Dec 27, 2007: 1:31 AM CST

Yahoo (YHOO) on its 15-minute chart recently completed three clear technical chart patterns worth studying further.

Let’s look and then I’ll describe them:yhoodec261.jpg

Price was selling off into a downtrend, but a momentum divergence (bottom oscillator) formed with price selling off but momentum turning higher.  The potential for a short-term reversal increased.

Price did indeed reverse and formed a type of “U-Turn Buy” zone, also known as a “Saucer” or potential “Cup with Handle”.  You can see the smooth rounding in price which lets you know that the remaining supply is being absorbed by new buyers.

Finally, a consolidation triangle forms, which resolves to the upside as a confirmed continuation pattern.  Notice how the moving averages serve as the “midpoint” or horizontal line through the consolidation pattern (triangle).  Enter a scalp (short-term trade) at the break-out point with a stop beneath the midpoint.

Notice how a negative momentum divergence has formed at the right side of the chart, decreasing the odds for successful long-side (buy) trades on this time-frame.

Trades are momentary windows of perceived opportunities and reflect probabilities only.  Still, it’s best to identify opportunities that make intuitive sense to you and annotate them across numerous charts.

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