Blue Coat Fundamentals Great, Market Not Yet Safe

As I mentioned on Blue Coat Systems' (BCSI) tremendous earnings report, I did sell down my position a bit - more a function of a terrible market, and took profits when offered. The plan going forward on a name like this with is to let the chart do the talking in spite of the fact BCSI is surrounded by despised peers. The stock is still below its 50 day moving average, which is just a tad above $38. The stock actually got as high as $40, but fell back during the day.

What we want to see here is a close back above Blue Coat's 50 day moving average, now that the fundamentals have reassured investors that the sky is not falling. Preferably a few days of this are needed to confirm this trend. When that day comes, it should signal a coast is clear signal (Of course, barring further market meltdown in which no move is safe.)

I am currently very low on cash since so many bargains have appeared in the market, so I can't really increase my stake in Blue Coat at this time. But as we go forward this is the type of technical price action one would want to see. This is perhaps counterintuitive - i.e. why would you not want to buy at a lower price ($36s, $37s) instead of a higher price (above $38). Well this just goes back to the fact that many stocks below a trend line tend to stay there, and it can last for a long time, or worse - lead to further weakness. And we want money working for us, not degrading in value.

So while the fundamentals look great, conviction in this name is solid, we want to see the market get behind the name and push it to a better technical position. So going forward, I'd like to see that break above $38 on a nice volume and we should be in good shape on this name.

I had mentioned earlier this week that the stock seemed to have bottomed out around $32 where it kept falling too during all the market sell offs; the good news is the stock is now making higher lows, and even in the current sell offs, $35-$36 seems to be a new floor. (again barring a market meltdown) So this is a bullish sign. Again, this is purely a technical call on a stock I like, have liked, and will continue to like from a fundamental basis (even if the market trashed it for no good reason)

Also it is good to see the teflon tech stocks holding up very well today. We have pockets of strength, tiny pockets in an otherwise ugly market. Once again it feels like Ground Hog day - every day is the same darn thing. When we get even minor rallies you see the favored stocks lift, but these rallies are literally 30 minutes to 2 hours at a time and other than for very short term traders this is an impossible market to make money on from the long side.

Disclosure: Long Blue Coat Systems in fund; no personal position