Positive Surprise? So What!
The market continues to punish the
disappointers, creating opportunity for the shorts. Dell Computer, of course,
is the latest example, joining Intel, Apple Computer and Eastman Kodak in the
dog house.
More bearish, though, is that the
market is punishing stocks of companies that beat earnings. I’ll turn to
Dell
(
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PowerRating) momentarily. First, let’s look at Micron Technology
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PowerRating),
which may tell us more about the market’s miserly mood than the headline-grapping route in Dell shares.
You expect disappointers to get
whacked. But in a powerful downtrend, the market will ignore good news as well
as punish bad news. Is that the kind of market we’re in? It seems to be,Â
at least where semis and PC-sales-sensitive stocks are concerned.
After Wednesday’s close, Micron, the
world’s largest maker of memory chips, reported Aug. 31 fourth-quarter earnings
of $1.20 a share. That compares to a year-ago loss of 3 cents and analyst estimates averaging
a profit of 96 cents, according to First Call/Thomson Financial. Sales rose 138%
to $2.57 billion.
Not good enough. On Thursday, Micron
fell 5 15/16 to 41 on more than double average volume. The stock closed
bearishly in the bottom third of the day’s range. Micron made a stab at stopping
a seven-week downtrend on Wednesday. Thursday’s declining to lower lows resumed
the downtrend.
Late Wednesday, No. 2 computer maker
Dell trimmed growth projections, citing slowing European sales and small
business demand. Dell also warned that Q4 profits would come in a penny or two
below previous guidance.
Shares fell 3 to 25 3/16 on more than
three times its usual trade. Dell’s decline, coming on the end of a steepening
decline, makes it ripe for bounce. If I were looking to short this one, I’d
stand on the sidelines, watch for the bounce, then short if the downtrend
resumed. For a look at shorting setups, see my lesson Sell
‘Em Short: Three Patterns For Bears.
All stocks are speculative. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.