Yahoo! Inc. (YHOO) Tests Key Levels as Core Business Bids Disappoint

Yahoo! Inc. (NASDAQ:YHOO) is disappointing bullish traders in and out of the options pit this morning, dropping 1.8% to $36.36 on news that bids for the company's core business are expected to fall in the $2-$3 billion range -- significantly lower than the $4-$8 billion range previously predicted. YHOO set a deadline for the next round of bids in the first week of June, and it's unclear whether that will be the final round. While traders had been encouraged by the company's sale prospects of late, they could be sweating as the stock tests multiple levels of technical support today.

Specifically, the shares are on track to finish below both their 50-day and 10-week moving averages for the first time since February. Furthermore, YHOO is testing recent support at the $36 level, which has limited the shares' drops since late March. A breach of these supportive trendlines could send YHOO on a further plunge, especially if accompanied by a shift in sentiment.

Despite the stock's 16.8% year-over-year decline and the uncertainty over the company's future, analysts appear optimistic, with 18 out of 26 maintaining a "buy" or better recommendation on YHOO, and not a "sell" in sight. And short sellers have been backing off lately, with these bearish bets falling by nearly 20% during the two most recent reporting periods, to account for less than 5% of the stock's total float.

In the options pits, traders have been favoring bullish bets, too. YHOO's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 5.48 -- higher than 86% of all readings in the past year.

Echoing this heavy preference for calls is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.30, which sits just 5 percentage points from an annual low. That means near-term traders have rarely been so call-skewed toward YHOO in the last 12 months. But an unwinding of all this optimism in the face of Yahoo! Inc.'s (NASDAQ:YHOO) potentially disappointing valuation could send the shares tumbling back toward their February lows.