Chart of the Day: Dell Short-Term Trend Gearing Up Despite Mixed Earnings
Pinchas Cohen | Nov 23, 2022 08:13
On Tuesday, shares in Dell Technologies (NYSE:DELL) were volatile, falling 1.5% and jumping 1.2% in the first ten minutes of the session. At the end of the day, the shares were 6.77% higher, as the tech giant posted strong earnings after the close on Monday as supply-chain problems eased.
Conversely, weakness in the personal computer market persisted, and the company's guidance was below estimates, citing macroeconomic factors.
After the pandemic lockdown, many technology stocks have tanked or posted muted performances whether they offered softer guidance or beat expectations.
Accordingly, DELL plunged in the first 10 minutes of trade. However, as already mentioned, the stock surged the most since its 12.86% rally on May 26, after the first quarter of fiscal 2023, smashing first-quarter goals, and snapping an 8-week losing streak.
So, with a mixed bag of earnings, why did DELL shoot up yesterday while competitors like Lenovo Group (OTC:LNVGF) rose 0.3%, HP (NYSE:HPQ) gained 0.75%, and even Apple (NASDAQ:AAPL) added just 1.47% of value, not to mention Acer (TW:2353), which dropped 1.71%?
I'm not sure. Maybe investors focused on the positive in Dell's report. Maybe informed money knows something we don't, or trading got sucked into a technical chain reaction.
The stock completed a falling flag pattern when bulls were presumably trying to "take stock" after an advance at neck-breaking speed. After the price climbed more than 10% in four sessions and 16% within eight sessions, bulls quickly locked in gains while they waited to see what would happen next.
The upside breakout signals the end of profit-taking. Demand absorbed supply within the pattern, and buyers upped their bids, seeking new, more demanding sellers at higher offers. The trigger may be a short squeeze. At this point, bulls who exited might say, "They were right all along!" beating themselves up with, "why did I question myself?!" as they rush back into long positions.
This bullish activity could trigger another short squeeze, pushing the price higher. Finally, traders who were, until now, on the sidelines recognize a trend and jump on the train.
A spike in volume on the breakout confirms the move as representative of the trend, rather than interest moving the stock with the low resistance of thin volume.
What's most encouraging is the flag's placement on the supply-demand spectrum, squeezed between the uptrend line from the Oct. 13 low and the downtrend line since the Feb. 10 all-time high. This cross suggests that the short-term uptrend is gaining on the medium-term downtrend. However, the medium-term series of peaks and troughs are still pointing down. Nevertheless, breaking through with a solid green candle, backed by volume, suggests positions are winding in upward momentum.
The flag formed precisely between these two converging trendlines, not for nothing, acting as a catapult to show the price over the downtrend. Similarly, the flag found support by the 100 DMA, which has been "guarding" the downtrend line since the price fell below it in February, as bulls face the 200 DMA, which has added a layer of resistance since April.
Trading Strategy/h2
Conservative: Nov. 9 low to Nov. 15 high, a $2.78 implied move from the $42.60 breakout, targeting $45, which matches the 200 DMA.
Aggressive: Nov. 3 low to Nov. 15 high, a $6.41 implied move from the $42.60 breakout, targeting $49.
Conservative traders should wait for the price to cross the 200 DMA and then for accumulation before the next leg up.
Moderate traders would wait for a pullback for a better entry and at least one more close above the flag.
Aggressive traders could sell off the 200 DMA, exit-and-buy on the dip.
Trade Sample 1 - Aggressive Short
- Entry: $45
- Stop-Loss: $46
- Risk: $1
- Target: $42
- Reward: $3
- Risk-Reward Ratio: 1:3
Trade Sample 2 - Moderate Long
- Entry: $42
- Stop-Loss: $40
- Risk: $2
- Target: $48
- Reward: $6
- Risk-Reward Ratio: 1:3
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Disclaimer: The author does not hold any of the assets mentioned in this article.
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