By Chris Seabury
During the last year unpredictability has been increasing for the major market averages. The main tool for gauging sentiment (i.e. the VIX) went from a high of 48.00 to the current levels (19.87). When this decline was happening the underlying amounts of fear were subsiding. This has some investors wondering if select technology stocks are a good buy, based on lower volatility. To determine this requires examining Baidu.com (BIDU), Sina Corporation (SINA), Netflix (NFLX), Salesforce.com (CRM) and Open Table (OPEN). All analysis and opinions should be used as a starting point for future research.
Baidu.com trades in a neutral to bearish pattern, with the stock selling below the 200 day moving average ($134.52) on lighter volume. Moreover, the recent upward movements in October are an indication of a bear rally, following a failed attempt to rise beyond $145.00 in November. Since that time the stock has struggled to hold support. In early December Baidu.com tried to break this pattern but was unable to do so. It is at this point when shares encountered resistance at $132.50. Additionally, the company trades at a beta factor of 1.47. In the past year the firm has reporting unstable earnings ranging from $.50 to $.84. These factors are highlighting how Baidu.com is overbought.
The weak momentum and the lack of enthusiasm surrounding earnings are the biggest reasons. For example, in the recent rally the stock could not go beyond $145.00 (which is after better than expected earnings of $.84 versus $.83). In fact shares have traded below these levels since that time. Here is a sign that investors should be cautious of Baidu.com over the short term.
The recent price weakness after the earnings report and lack of enthusiasm from the lower volume are obvious indications that the price will be volatile. In the medium to long term, investors should be watching the earnings. If they are well above the previous numbers, the stock could reverse and test $145.00. However, if these figures are weaker or in line with expectations, shares could test the 52 week low of $100.95.
Sina Corporation shows promise based on the double bottom pattern that was established at $64.81 earlier this month. The problem is that the stock is trading well below the 200 day moving average of $92.84. Here is a bearish sign showing how there is a lack of interest from buyers (due to the low volume). Moreover, the stock trades at a beta factor of 1.40. The earnings per share have been declining from $.46 to $.20 during the past year. In the last quarter this number climbed slightly to $.26.
These figures are illustrating how Sina Corporation should be avoided. The reason why is from the weak momentum that is attributed to frail earnings and volatility. The recent attempts at forming some kind of a bottom are the sign of a bear rally. Over the medium to long term shares could face increased amounts of pressure. This is when the odds increase that the price may fall through the 52 week low ($64.81).
Netflix shows tremendous amounts of price movement since the beginning of the year. The problem is that the stock is trading well below the 200 day moving average ($180.62). At the same time, shares could face tremendous amounts of resistance at $120.00. The beta factor is .73 and continually climbing. The earnings per share have been going from $.87 to $1.26. During the last quarter this number declined to $.16. The aforementioned helped to push shares lower based on concerns that the company is not adjusting from mail order DVDs' to online streaming video markets.
Recently, reports were released about how Netflix was able to maintain their dominance in these areas. However, there are other competitors that have been entering the industry (i.e. Red Box). In the past, the company has provided customers with a set top box for purchasing and downloading movies. Then, the firm worked in conjunction with Netflix to deliver this service. In 2012 Red Box plans on directly offering this to customers (which will challenge the dominance of Netflix). As a result, investors should wait for Netflix to be able to report more consistent earnings and share prices to go through the 200 day moving average. It is at this point when there will be strong upward momentum.
Salesforce.com shows the possibility of seeing a double bottom pattern established off of the 52 week low ($94.09). During the last month shares have been attempting to rally climbing to $114.51 on heavier than normal volume. The stock trades below the 200 day moving average (which is bearish). The beta factor for the firm is 1.06. In the last 52 weeks the earnings have been flat ranging from $.31 to $.34.
These numbers are highlighting how the stock is not a good buy. Recently, there has been weak momentum with shares facing stiff resistance at $125.00, $130.00 and $135.00. The flat earnings are an indication that there is very little bottom line growth. This means that Salesforce.com is in bear rally that will be followed by a retest of the lows.
Open table trades below the 200 day moving average of $64.52. The stock formed a bottom in early December at the 52 week low of $31.54. Since that time the price has been rallying and is testing the $50.00 mark (on low volume). The beta factor of the company is .90. The earnings for last year have been flat ranging from $.33 to $.30. These facts are highlighting how Open Table should be avoided. The aforementioned is based upon the poor momentum (from a lack of open interest) and strong resistance at $50.00 (which could end the rally from the past few weeks). Moreover, there are no rising earnings to accelerate the price or volume movements. In the future the stock will retest and possibly go through the 52 week low. As a result, investors should be cautious until there is better momentum that is combined with strong earnings growth. This is when the stock will be more attractive.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.