Yellow Media Inc. in a vicious downtrend

Nov 2nd, 2011 – Comment

I wouldn’t be chasing this stock. Management has proven itself prone to overly optimistic thinking despite the dismal facts before them.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Hi Lou,

I wonder if Yellow Media will bounce up and down a little bit or is it dead in the water.

I got cute a couple of years ago trying to make a few bucks with Can West Global. I don’t think this is as bad?

Michael

 

 

Hi Michael,

I have covered Yellow Media Inc. ( YLO TSX) multiple times for readers. The first post was on  June 12 of 2009 , the last was June 06, 2011 on a request from Andre when the stock was trading for $3.82. Over the last two years it was advised that the printed directory business was a sunset activity and that the transition to a digital strategy had execution risk. In addition it was clear that chasing the dividend could lead to trouble.

In July of 2011 I was contacted by an old friend of mine who is a seasoned investor and a contrarian by nature. He told me that he was loading up on YLO because in his view the street had it wrong and the stock was oversold.  That caused me to re- examine the factors involved but I still didn’t see a reason for a change in my analysis. The trend was down and the momentum indicators were not suggesting a reversal

Let’s examine the charts and see what might be in the cards for the company.

 

 

The three year chart is a classic example of a stock you do not want to own. A vicious downtrend with a death cross in place is not where I generally look to invest long. I can only imagine how happy the shorts has been with this stock. If you want the blow by blow story on how YLO destroyed so much value read the October 27, 2011 article in ROB Magazine by Susan Krashinky titled “How did Yellow Media stock go from $17 to 17 cents?

What is apparent is the bounce off the rock hard bottom at $0.12 in late September after the company announced it would halt paying a dividend and would  take a $2.9 billion charge. The October advance stalled when it hit resistance along the 50 day moving average.

 

The six month chart provides a close- up of this debacle. I have to suspect that the buying that came into YLO in October had to be short covering. What you want to keep in mind is that the company will report Q3 results on November 3, 2011.

I wouldn’t be chasing this stock. Management has proven itself prone to overly optimistic thinking despite the dismal facts before them. The best time to buy a stock is when it is going up.

Make it a profitable day and happy capitalism!

 

 

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