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What Does Downgrade Mean For MLNX

|Includes:Mellanox Technologies, Ltd. (MLNX)

There was a lot of chatter about this stock on the twitter stream and I wanted to give my thoughts on how I perceive Friday's action but we need to go back a few months to really see what Friday's downgrade means in the grand scheme of things.

#1. Earnings pop, big move, indication that this is a stock to focus on for the coming 3-6 months.

#2. Base building is happening as it digests the last earnings move.

#3. Another earnings pop. This is not the time to be aggressively buying as it is to start trimming out of your positions with a trailing stop or just selling some outright on days it has a move outside it's ATR (average trading range).

#4. I obviously can't count and I'm too lazy, I don't have time to go back and annotate the chart.

#5. Upward sloping channel that is losing momentum (Negative divergence on RSI)

#6. Earnings downgrade, break of channel suggests this is going to have a more serious correction.

I would look to this to correct back to $90-100 range at a minimum. That may be an area to consider initiating a new position. Normally I view downgrades as an opportunity to add to my position, but in this case on the tail end of a big run I would assume this is going to experience more selling.

I still view this as a very strong weekly chart and will be watching how it reacts back to point #3 on the chart below or when the RSI on the weekly chart gets down to the 40 level. That is where it may find a tradeable bottom.

(click to enlarge)Click to enlarge

These are the type of stocks I identify as trade setups with my tradewithZEN stock suggestion service. See how these stocks have fared since then.

  • CTB was added on Aug 8th
  • CAB was added on July 26th
  • CRUS was added on July 31st.
Stocks: MLNX