Thursday, June 23, 2011

Dell Shares Poised for Push Higher:DELL

Though many chart-watching traders tend to zoom in on very-near-term daily (and even intraday) charts in their efforts pinpoint an opportunity, the reality is that the biggest and best technical clues are usually only evident when you take a step back and look at the bigger picture.

Case in point? Dell (Nasdaq:DELL). Most everyone knows this computer maker’s stock has weathered the recent bearish storm quite well. What most everyone may not recognize, however, is that Dell shares are actually on the verge of a major breakout.

Most good trade setups have one crystal-clear reason to expect a particular move. What elevates Dell to a great trading opportunity is that the charts are showing multiple reasons to be bullish, all coming together at about the same time. In no particular order:

  • Bearish resistance lines that extend all the way back to 2005 (purple) have finally been breached. Simply put, after three failed attempts from Dell to fight its way past its ceiling, the fourth attempt finally worked. Now that it has, there’s lost time to make up.
  • Since early 2009, a string of higher lows has now developed two distinct support lines (orange), the second of which is more aggressively bullish than the first.
  • Though it’s tough to see with just the raw volume data, the rising accumulation-distribution line (light blue) confirms there are more buyers than sellers — and have been for a while. This is crucial to a trend’s longevity.
  • The only remaining known resistance line left to topple is the $17.50 area (blue, dashed), and it’s about to be attacked. If and when that ceiling falls, it’s game on for the bulls.

If it were just one or two of these bullish clues falling into place, Dell would be nothing to be especially excited about. To see three of the four hints take shape, however, with a fourth one just around the corner, it’s hard not to be excited.

By now, you also will have recognized something you rarely see anymore, particularly when it comes to technical analysis — a weekly chart. Some consider them a relic in the current trading environment, where news is old by the time you read it, and traders are making an exit plan even before a trade is entered. Fair enough — if the goal is simply to quickly scrape off a couple of points’ worth of profit and then move on.

If you’re looking for very big gains, though — as in triple-digit gains – and don’t mind holding a pick for several months, then a weekly chart is the only way to weed out the distracting and misleading day-to-day noise and spot the true big-picture undertow.

How does that idea apply to Dell’s stock ? If the only tool traders were using was a daily chart, owners may be prompted to make an exit once the stock reaches a resistance line that extends all the way back to last July. As we’ve already established, however that’s actually a few cents above the key long-term breakout level; short-term traders would be looking to sell Dell at the very a point in time when the stock’s likely to start accelerating.

It’s almost needless to point out that the mid-$17 level is a pivotal area for Dell and its investors. If and when the stock approaches $18, look for bullish fireworks to start.

End note: While the technical clues here imply the company is performing adequately in terms of revenue and profit generation, it should be acknowledged just how well Dell is doing. Last quarter’s earnings of 49 cents a share and the trailing-12 month per-share earnings figure of $1.67 are both record-breakers for the company. Yet the stock is about as cheap as it’s been in years. You can add that fundamental reason to the list of technical reasons why Dell has such a great shot at going higher from here.

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