Internet conglomerate Yahoo! Inc. (NASDAQ:YHOO) $12.67 -0.23% is set to report earnings tonight and a surprise, up or down, could sway investor psychology near-term. Analysts are looking for the company to report earnings of 2-cents a share, versus year-ago earnings of 1-cent a share.
Ahead of tonight's earning, research firm Investec Inc. placed a "sell" rating on the stock with a bearish price objective of $8.00. Yesterday, in OptionInvestor.com's market monitor, I suggested a lottery play (risk capital only) in the July $12.50 puts with a near-term price target of $11.50.
While investor confidence most likely has had market participants shying away from the Internet space, which has struggled with profitability issues due to weakening ad markets, the supply/demand chart of Yahoo! (YHOO) has been noticeably weak since giving a bearish triangle pattern back in June at the $15.00 level. With a bearish vertical count of $8.50, investors can perhaps tie in today's call from Investec.
Yahoo! Chart - $0.50 box
The point and figure chart of YHOO remains bearish. While I looked at a straddle and strangle trade, the higher market volatility has option premiums running high in many technology- related stocks. As such, I think a downside bet ahead of tonight's earnings is what the MARKET seems to be bracing for.
An "upside surprise" from YHOO or positive comments about any type of renewed ad-spending from customers could give a boost to investor confidence near-term.
Fundamentalists like to monitor trends in ad-spending by corporations to get a sense of confidence from corporations in an effort to stimulate interest in their products or services. In recent years, Internet company's like Yahoo! have seen sharp declines in ad-spending as corporations have cut their ad budgets in an effort to conserve capital.
While shares of Yahoo! (NASDAQ:YHOO) $12.37 -2.5% trade fractionally lower ahead of tonight's earnings, the broader CBOE Internet Index (INX.X) 71.44 -0.09, is holding its ground as components Amazon.com (NASDAQ:AMZN) $15.68 +0.51%, eBay (NASDAQ:EBAY) $60.14 +5.43% and Cisco Systems (NASDAQ:CSCO) $13.88 +5.56 are showing some gains.