One reason I thought the $475 area would hold better was the fact that the 50 day MA was sitting at $472.50. However, trading & technical analysis is not a science even though at times it seems to work that way. So instead of the 50 day serving to hold GOOG up, it almost seemed to pull the shares down beneath the line. Once the $470 level gave way, the flood gates opened bids were driven down very quickly. Welcome to GOOG 101 on a bad day.
All this of course, was stirred up the the WSJ piece talking about GOOG facing EPS pressure from ... interest income. Yes that's correct, the WSJ article seems to place more importance on interest income off of GOOG's large cash balance to be more critical to hit EPS numbers(for next qtr.) than the growth of core search, record online shopping stats, full qtr. of MySpace partnership, the GMail usage explosion, the growth of the Google Homepage etc...
End of year trading can be tricky and fickle, as large Hedge/Mutual fund dynamics come into play. This creates greater dispersion of stock movements. However, the relative level of many key technical levels are still relevant, but you have to broaden the ranges.
In my prior post I pointed out that the $475 level could fail to hold and better support exists in the $445-455 area. Just one day later, that looks eerily correct.
At this point ($462), GOOG has given up all of it's gains since the day after their earnings pop. Given that the last qtr. was so strong, YouTube has been completed and we are the midst of record online shopping season, as well as the seasonally best qtr. of the year -- the selling seems to be getting somewhat overdone.
My plan is still to add in the $445-455 area should it occur, in the meantime I increased my GOOG exposure modestly by adding some long-side option exposure to the portfolio.
Long GOOG, short puts.
Monday, December 18, 2006
GOOG broke the $475 level. Now longer term support comes into play.
Sunday, December 17, 2006
Google (GOOG) - a good buy and stealth online shopping play.
GOOG -- Currently consolidating big recent move after last EPS report. I have recently added some GOOG back that I sold between $496-506. Stock could still fall farther but for those with no position, the recent sell-off is an opportunity to buy an initial position. The prior all time high around $475 should serve as fairly solid support, while $445-455 would be an area of even stronger support. I will add more at this lower level, should the stock trade there.
If the Hedge/Mutual Fund community undergoes a bout of performance anxiety through year-end, then I would expect GOOG to be a primary stock for those wanting more NASDAQ exposure. Additionally, the next time GOOG moves through $500, I firmly believe that number to serve more as support level than resistance.
Most talking heads mention names like EBAY, AMZN & AAPL, along with the big box retailers as the way to play this year's strongest online Christmas season ever. However, the best/easiest way to play this explosive year for online shopping may just be Google. GOOG is getting a lot of search action, combined with solid keyword pricing -- all this bodes well for the Christmas season.
Bottom line, the GOOG will benefit from the biggest online shopping season in history and all this only serves to strengthen the numbers for the upcoming quarterly report in mid-late January.
Many price targets are out there for GOOG, as analysts like to play the -- I've got the highest price target game. For a more useful trading target(weeks to months), a realistic range given a strong Jan. EPS report and continued strength in deal flow would be the $560-580 range. This would represent a 12-16% move above $500, after re-taking that level. At this higher range, I would be more apt to use a trailing stop, sell a partial position or use some covered calls to protect downside in the name.
Long GOOG
3Com (COMS) -- update, earnings coming. Stuck in show me mode again.
3Com continues to be mired in deep value stock -- or better yet, show me stock purgatory.
EPS report is coming on the 20th this week, Wednesday after close. While I am disappointed that COMS has traded 15-20% lower since their announcement of buying the remaining stake of H3C -- I am not surprised.
Mr. Market was clearly hoping for a liquidity event for COMS, as a couple private equity shops were bidding for the JV.
However, I still hold shares of COMS as I feel that the upcoming 1-3 qtr's will show impressive growth out of the H3C. Core COMS may also contribute improved performance and near term the details of the financing for the H3C's purchase could contain positive news.
I do view COMS as more of a trading stock than a stock to invest for the long term. However, current valuation, combined with some near term potential catalysts makes the shares appealing under $4.15 -- as a run to the $5.10-5.50 level seems probable within a 3-6 months.
I may add to my position ahead of the call, and would certainly increase my stake if COMS were to sell off to the $3.85 level after the call. Though I am not expecting a material sell-off from current levels.
Long COMS
JDS Uniphase (JDSU) -- I like the current setup.
For a current investment in JDSU (short-intermediate term) -- here are some key
points that stand out currently.
1. Stock removed from Q's resulting in large volume day on Friday.
Stock traded almost 4 times normal volume and obviously most of the
volume was driven by sellers readjusting the Q's. Even with that, the
stock held up fairly well closing down only about 40 cents. That says
to me that there were plenty of folks willing to soak up all that
selling -- this is not retail folks buying. I thought JDSU could fall
by as much as a buck on the Naz rebalance. Now that JDSU is out of Q's
that has other implications that I'll address in a bit.
2. Even with recent pressure after EPS spike the stock held the 50 day
MA. MACD stayed on slightly bullish territory and RSI is neutral, but
any improvement will put in solidly bullish territory. Again, all good
signs -- esp. considering that JDSU is still barely above $2 on a
pre-split level and I imagine some tax loss selling has been occurring
in the name.
3. Recent action in OPTM & CIEN should bode well for JDSU. CIEN &
JDSU have been sister co's for quite some time and it's fairly unusual
for one to really do well without the other participating.
4. While I don't think we will have a huge Classic Jan. effect this
year, that doesn't mean some co's will not act exhibit a good Jan
effect bounce. JDSU is one of those names.
5. Negativity still very high even while stock is Technically good at
a minimum. That is a classic divergence pattern I look for.
6. Fundies are improving but maybe more slowly than names like CIEN.
I still think the T&M business will continue to show solid progress
with the continued global build out. And that part of the business is
probably very undervalued within the stock -- in a very similar manner
that I think the networking biz within MRVC is undervalued.
7. Back to being out of the Q's. While some may think of this as a
negative, I think it could help much more than hurt in the future.
JDSU has been a name long loved by the shorts to hit hard on any big
day's of NAZ weakness. Yet on big up days, few folks target JDSU for
trading for upside moves. Names like GOOG AAPL QCOM BRCM etc... tend
to get the nod for that type of action. Now that they are out of the
Q's we could dramatically less short sided targeting manipulation.
That could serve to strengthen the longer term TA picture as the stock
could exhibit a more stable trading pattern which many institutions
like to see.
Sometimes trading dynamics like this are way more important to stock
performance than many other factors.
8. Another note of Q's. Many times stocks removed from the Q's end up
doing very well just due to sector and valuation dynamics. In other
words, Index rebalancing is all about putting in new names based on
increased market cap & visa versa. I.E., the index is basically buying
the high & selling low. The Q's don't have a lot of changes every year
but the Russell and S&P have many more names and there are trading
systems based on buying the rejects of those indices and results are
quite good.
9. Short interest. While not super high it's still plenty high with
11mm out of 200+mm shares outstanding or 5.6% of float at last report.
Not sure this helps much this month, as the shorts will figure to ride
it through tax loss selling. But late this month and into next year I
expect to see more short covering. Moreover, a good EPS report next
qtr. could nearly put the nail in the shorts coffin.
10. With T/BLS issue I am not confident of big beats out of JDSU for
the next 1-2 qtr's but I still think they will be solid vs. the co's
conservative guidance. Once T/BLS issues are resolved I would expect a
return to some qtr's of strong results and guidance.
11. Lastly, any little bit of positive EPS & cash flow in the next
couple qtr's could send the shares higher.
Bottom line. I continue to like the setup.
Ciena (CIEN) crushes the qtr!!
until the stock is at least 10-15 points higher. Stock still well off
year highs, with much of damage still being felt from the post R/S (reverse split)
sell-off. Stock was selling between $27-31 ahead of last qtr's call
and before R/S announcement. The R/S muted how strong last qtr's
result and call actually were.
They beat and guided higher but the R/S stole all that thunder -- baring the R/S the stock probably would have traded 5-10% higher on last qtr's strength to the $32-35 range assuming post split pricing. This also assumes zero lift from the strong general market. CIEN has produced results in line with other top tech performers like AAPL, yet their stock has fallen huge since R/S. Now profitability is solid and while each qtr. could still be lumpy I
would look for CIEN to post stunning YOY EPS growth for at least 2 years.
If I was NT CSCO TLAB or ALA there is no way I would let CIEN remain
independent. If I was a short, there is no way I would stay short this name.
I added shares ahead of the call and during the call -- moreover, CIEN was
already a substantial core holding. The 200 day MA is at $28.36 and if
CIEN breaks that level, I may add trading shares in and around that level.
Technically, the stock is passing through the 90 day MA currently and
historically that has had a very high correlation with continuing performance for CIEN.
Lastly, analyst cov. is still hugely negative with 19 of the 24
analysts rating the shares a hold or lower. Only 1 strong buy on CIEN
currently, which is simply amazing after 4-5 qtr's in a row showing improvement. At this point, that analyst negativity should change for the positive in the coming weeks. IMO, CIEN should trade substantially higher during 2007.
Long CIEN