Nasdaq-100 component Altaba Inc. (AABA) holds the balance of the remaining Yahoo assets, including 15.4% of Alibaba Group Holding Limited (BABA), following Verizon Communications Inc.'s (VZ) partial acquisition. The newly minted $52 billion market cap seems pricey, but no one really knows the value of this corporate hodgepodge or how it's going to grow in the coming years.
Technically speaking, the stock is well positioned for gains through the rest of 2017 because the new entity has adopted Yahoo's long-term chart, yielding a timely breakout above the 2014 high at $52.62. While it's easy to second guess this glued-together reporting, consider that other big caps including United States Steel Corporation (X) and AT&T Inc. (T) have also sewn together bits and pieces of newly acquired operations or divestitures into multi-decade price charts. (See also: What Is Altaba Anyway?)
AABA Long-Term Chart (1996 – 2017)
The former company came public at $1.49 (after adjustment for five stock splits) in April 1996 and fell into a downtrend that found support near 65 cents. It then entered a powerful trend advance driven by the awakening of the net bubble, rising to an all-time high at $125.03 in March 2000. The subsequent downtrend relinquished the majority of the prior decade's dramatic gains, dropping the stock more than 97% to $4.01 at the end of 2002.
The subsequent uptrend topped out at $43.66 in January 2006, highlighting severe technical damage because the rally failed to reach the .386 Fibonacci bear market retracement level. A pullback into 2008 accelerated during the economic collapse, dropping the stock back into the single digits for the second time in six years. It underperformed badly after hitting a bottom in November 2008, stuck in a narrow trading range bounded by resistance in the upper teens.
The stock took off in the strongest buying impulse so far this decade in the second half of 2012, breaking out above the 2006 high in October 2014 before topping out in the low $50s a few weeks later. It then entered a steep correction that found support in the upper $20s in early 2016, ahead of an equally strong bounce that reached within a few points of the prior high in May 2017, just a few weeks before this month's post-acquisition breakout. (For more, see: Verizon Officially Now Owns Yahoo, Mayer Resigns.)
AABA Short-Term Chart (2015 – 2017)
The sell-off into 2016 unfolded through an Elliott five-wave decline, perfectly aligned with bearish action throughout the tech universe during that period. The stock tested the September 2015 low at $27.20 in February 2016, broke down and then rallied strongly, setting off a 2B buy signal that denotes the failure of bears to hold new resistance. Rumors about a company sale or divestiture generated speculative buying interest into September, when it disclosed high-profile hacking incidents that raised questions about the company's valuation. (For more, see: Yahoo Confirms Massive Data Breach.)
On-balance volume (OBV) topped out in 2014 and entered a persistent distribution wave that ended four months before the price bottomed out in the first quarter of 2016. This bullish divergence contributed to steady buying interest that reached a new high ahead of the Verizon sale. The transaction triggered high-volume price bars and a sharp indicator downturn to a nine-month low, signaling aggressive profit taking as well as new purchases.
The OBV downturn tells us that the stock needs to rebuild previously loyal sponsorship to continue the 16-month uptrend. However, the price remains in breakout mode, and it makes sense to ignore recent signals because they're unfolding right at the interface between the two corporate identities. In other words, this seemingly bearish activity could reflect the natural rotation from one set of shareholder hands to another. (See also: On-Balance Volume: The Way to Smart Money.)
The Bottom Line
Altaba came to life after Yahoo sold key assets to Verizon, with the new entity using the parent's long-term chart. The split has triggered a major breakout undermined by a bearish volume signal, but we'll ignore that red flag for now, given broad tech strength and confusion about the new entity's legitimate supply and demand. (For more, check out: Altaba Spends $3.5B on Its Shares in Dutch Auction.)
<Disclosure: The author held no positions in the aforementioned stocks at the time of publication.>