ducktheherd's  Instablog

ducktheherd
Send Message
Finance/Economics - NYC boutique B/D / banking firms for past 8+ years, sales and trading (extensive focus on technical trading), equity research, valuation analysis for small banking projects $3 - 15mm, currently in the process of going through the regulatory process of opening a B/D. Licensed... More
  • EMC : Weekly Chart Showing Long Term Weakness 0 comments
    Feb 17, 2013 9:10 AM

    EMC - $50 billion market cap data storage/tech company, $21 billion in sales $4-5 billion net cash, +80% institutional ownership, also known for being one of the early players in virtualization through their purchase of VMW in 2003 for $623 million. Today VMW is a $32 billion company of which EMC still holds over 70%. It's an old story on the street and only worth mentioning because I'll bring up the VMW chart later in this post.

    Company looks a bit rich at 2.3 times sales, +8 times EV/EBITDA, and 12 times forward earnings, but that being said, management is ahead of the game, always out there looking for new technology/smaller startups to purchase and for that I believe they deserve a premium.

    Now, to the reason I am writing this post; TECHNICALS. The first look I want bring attention to is the weekly chart going back to Oct. 2008 when the company put in a multi year low at 8.35 and began what we see now as a 4 year primary uptrend which I have depicted. See following.

    (click to enlarge)

    You can see where the stock made a parabolic move around Oct 2010, tried to base between 25 and 29, but failed and found support at the moving average, ultimately the primary uptrend, around 20/21. (I use freestockcharts.com and while it usually works well, the moving averages look off to me) Next move higher takes the stock to 30.00 on the nose, and immediately retreats back to the primary uptrend. (NOTE: Traders will use round numbers as resistance and support for a number of reasons) The stock attempts another move higher but fails in Sept. 2011 just over 28, putting in a lower high, immediately retreating to the primary uptrend AGAIN, and looks to be trying to build a base, hovering around moving averages and the primary line, while potentially forming a flag pattern. Also, see the big volume down week (circled), which is very bearish and typically is a sign of institutional investors heading for the exits. Moving average have also converged and look to be turning down.

    I mentioned VMW earlier, not because the two shares are correlated, but merely to acknowledge the negative price action in VMW. See following.

    (click to enlarge)

    So, you have VMW that just got crushed on big volume, and the parent company EMC's chart looks like the stock wants to roll over, adding that EMC's chart is more significant as it is the weekly chart and represents a longer-term view for stock price.

    I would also note, after listening to recent conference calls of a few larger tech companies in similar areas of business (FIO, VMW, CSCO, ORCL) you see a common theme forming in that they are expecting their corporate customers to spend slower in the first half of 2013 while accelerating in the second half. If I am correct, there should be opportunities to short weaker names, and I feel EMC is one of those names.

    TRADE: I would short the stock at current levels, looking for a pullback to 21 - 20 level. Being that the stock is coming off several down days, I would not be surprised to see the bulls attempt one last show of strength with a move higher, however I would use any strength in the shares as an opportunity to add to the short position. (assuming stock doesn't break above the downtrend line)

    RISK MANAGEMENT: The downtrend line drawn from 30.00 in April 2012 should act as resistance going forward as it continues to trend down. Points above the downtrend will act as levels to initiate a buy stop, as a significant break to the upside of the downtrend line means the trade is broken.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Back To ducktheherd's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.