Riding Yahoo! to Its Peak

This column was originally published on RealMoney on Nov. 18 at 8:25 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

A good way to end the week is to take one trade -- one just highlighted Wednesday, by the way, as a long pick in my newsletter -- and answer R.P.'s specific questions below.

Gary, you really helped improve my investing approach. I've got a question regarding Yahoo!(YHOO).

Looking at a weekly chart, YHOO closed at 39 on 12/3/04. If YHOO manages to close above 39 this week, how long can we go?

Do I have to worry about resistance from back in 1999-2000? (I don't have chart data from back then.)

Thanks for all the great advice!

R.P.

OK, let's start with the chart, and there you can plainly see Yahoo! indeed breaking above $39. Couple that with the high volume and you can see why I listed it as a newsletter long.

As for how high it can go, one simple rule is that breakouts often repeat the "peak-to-trough" move they made in the prior congestion. For Yahoo!, that move was roughly $30 to $39. Add that 8 points to the $39 breakout number and Yahoo! should run to at least $48.

Finally, do you have to worry about resistance from six years ago? The answer always lies in the time frame in which you're trading. As a guideline, if you're in and out of trades in a few weeks, then a six-month look back is appropriate. (That's what I use for my trading.) If your time frame is in months, then I'd look back about six years. Any longer than that, and you probably use fundies vs. TA anyway, so I'm not sure it matters!

Today, the Dow Jones Industrials, Sears Holdings(SHLD), Time Warner(TWX), Quidel(QDEL), Motorola(MOT), International Paper(IP) and Sierra Wireless(SWIR).

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Charts produced by TC2000, which is a registered trademark of Worden Brothers Inc.

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And that is the final word from Tony's Exxon, where I'm not sure it can be any more predictable: When the noise level about gas prices was the highest, the price at the pump started falling. Remember the $5/gallon hysteria? The average price yesterday was $2.26. Next up on things you won't hear about in a few months: Avian Flu.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Quidel and Sierra Wireless to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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