Yahoo 40% Stake In Alibaba; A Wise Or Foolish Decision?

Yahoo! Inc (NASDAQ:YHOO) has a 40% stake in Alibaba, but the stock chart for Yahoo is not Impressive. Soon the world of investing will know whether Yahoo made a wise or foolish decision, investing so heavily in this huge Chinese based company’s IPO debuting in August or September 2014.

Revenues and Earnings have been steadily declining year over year for the past 4 years for Yahoo. The past four quarters have been up and down for both revenues and earnings, meeting its earnings expectations as reported on July 15, 2014. Also, YHOO is not in favor with the major institutions, standing in 80th place for the Nasdaq 100 Index and 431st place for the S&P 500 Index in terms of percentage of institutional ownership.

Institutional ownership percentages matter greatly when it comes to strongly trending stocks. YHOO did have a 22 point rise, out of its several year sideways pattern from 2012-2013 while the company had a massive buyback program underway. It repurchased 40 million shares from Third Point, and an additional 28 million shares during several quarters within the time the stock was moving up. There was also the 3.65 billion spent repurchasing 190 million shares from Alibaba. With lackluster earnings reports, the gains the stock made are easily attributed to the buybacks rather than institutional interest. Investors were happy with increased dividends, however the crux of the problem for YHOO has not been addressed. Technically the YHOO chart has topped and now is developing an asymmetrical triangle in the weekly view, as shown in the chart example below which is provided by Worden Bros TC2000 charting with permission and our thanks.



The runaway trendline pattern formed after the announcement of new CEO Melissa Mayer in July of 2012, and the decision to buyback shares of stock shortly thereafter. The angle of ascent was too steep and corrected in 2013. Currently the stock is in a topping formation with lower highs and an asymmetrical triangle forming, while support has held at the $31. This is a technical support level however, and these type of triangles are typically a continuation pattern most of the time.

This pattern is not showing the strength that would be expected if the earnings report was going to be a surprise or even meet expectations. In addition there is clear evidence of quiet distribution during the topping formation as shown in the bottom chart window, which is a pattern indicative of giant institutions slowly rotating out of a stock and lowering their held shares.

The Alibaba IPO does not appear to be giving a boost to YHOO that many commentators expected. In fact, the indicator pattern in the bottom chart window of Balance of Power is negatively diverging from price. As price moves up in the tightening sideways pattern, Balance of Power indicates that giant institutions in Dark Pools are quietly selling out.

Summary: The giant Buy Side Institutions do not appear to be interested in YHOO. Fidelity has lowered its held shares by 29.24%. A total of 754 institutions hold shares of YHOO, but 269 decreased their holdings over the past few months. Although no one can predict how the Alibaba IPO will be received by the general public, it is clear that the larger institutions are mitigating their risk ahead of this high profile IPO.