MorningWord 12/19/13: Yesterday’s price action was obviously pretty extraordinary. In 2 hours, U.S. equities got back all that they had lost in the previous 2 weeks. Investors have spoken, “DecTaper” was absorbed and then some! Your guess is as good as mine where we go from here, but one thing is very certain, the 1768 level in the SPX, which happens to correspond with the index’s 50 day moving average (purple line below) that it bounced off of yesterday, which was also the breakout level from late October, is the line in the sand for the bulls, and should server as fairly staunch support in the very near term through year end.
One interesting note about a big move to a new 52 week high on Fed days, courtesy of Jason Goepfert (@sentimenttrader):
$SPY has been +1% to a 52-wk high on FOMC day 4 times.
Next 20 days:
-3.2%
-2.2%
-2.2%
-0.6%
Perhaps we do see some weakness in the coming month too.
On the single stock front, YHOO closed above $40 again, just 25 cents below the recent highs which also represents levels not seen since January 2006. Earlier in the week, Citi analyst Mark May cut his estimates on YHOO but raised his priced target on a higher valuation for their Alibaba stake, and sees that as the primary reason to own it, here was an excerpt from his note to clients on Tuesday:
Yahoo! 2.0 — Many investors have been and continue to be fixated on the likely IPO of Alibaba Group as the key catalyst and reason for owning YHOO shares, and some are concerned about the sell-on-the-news risk for YHOO. We believe YHOO shares can continue to out-perform, even after the IPO, for three main reasons: 1) it will still hold ~14% of AG, which will represent approx. one-third of YHOO’s value; 2) continued large excess cash balance and share buybacks; and, 3) continued core Yahoo! improvement and revenue growth inflection
It’s the last bit that caught my eye, the “revenue growth inflection” part, which is almost laughable when you consider the table below that represents the company’s revenue growth or lack there of:
The stock in 2013 has been nothing short of Amazeballs! up 100%. The one year chart below shows just how systematic the rise has been, rallies $5 then consolidates, then rallies $5, then consolidates, wash, rinse, repeat. Well here we are at the next $5 consolidation level and I can’t imagine that fundamental news about YHOO’s core is going to suddenly be the driver for the stock one way or the other until we get an S-1 filing for Alibaba.
In the meantime, the stock is in consolidation mode for now. I anticipate the stock’s behavior will change significantly after the Alibaba excitement and IPO is finally over and the company is left with a pile of cash and little else to do with it aside from buying back their stock and making dumb acquisitions.