A good friend asked me to review Dell (DELL) as a long trade and I thought I’d share my opinion with all of you. The logic of the trade is sound as it’s a play on a short term bounce after the markets have suffered extreme damage on the technical side. He is also basing part of his buying decision in the belief that Dell should perform well in the coming quarters as he is in the IT field.
The only way I can honestly answer this is by what my experience has taught me. I never allow “what I believe to be true” about a company to influence my buying decision. This includes opinions, stories I’ve read about a company in question, experience in that industry, blogs, earnings reports, etc. I believe all of this info to be built into the chart and about as perfect of a reflection of where the chart is and is going.
After having said all of this, I do believe we’re due for some type of bounce, and while I don’t believe we’re out of the woods and most likely will see lower lows, a short-lived rally could be coming. So the overall trend is down, and in those cases when I want to go against the major trend I like to trade a major market ETF vs. individual stocks as they tend to be safer and less likely to have a significant % gap down day. There’s more company specific news that could derail a stock’s chances of rebounding when you’re talking about a stock like Dell.
If I absolutely had to buy an individual, it would probably be one that had a much better 2yr chart. A couple examples would be Advanced Auto Parts (AAP), Apple (AAPL), Baidu.com (BIDU), Sears (SHLD). All of these have extremely bullish charts, and stand a good chance of moving nicely if the markets rebound.
The chart below (click to enlarge) has a number of issues with it when you look at the major distribution days on volume, RSI under 50, and a general sickly looking chart pattern that really offers no “real edge”.
Hope this information helps you in deciding what you’re going to do.