Shares of computer maker Dell gained nicely in Tuesday’s trading, party on news that it would acquire network security firm SonicWALL. Of course a soaring broad stock market helped, too.
On the charts, Dell underperformed the broad stock market since February 22. On that day, prices jumped lower after reporting weak fourth-quarter earnings and disappointing analysts with its forecast for 2012. Shares fell 5.8% that day and left a pattern on the charts called a downside gap.
In English, it just means that supply and demand were so far out of equilibrium that prices had to jump down, leaving a space, or gap, on the charts. There was no time for the stock to smoothly trend lower.
But with Tuesday’s news, the stock appears to be is making an attempt to break back out to the upside. The three-week decline may have been a simple correction.
Analysts seem to applaud the news as Dell moves away from the personal computer and server business. However, the market is not quite as enthused as volume Tuesday was certainly not impressive. Since 2008, that has not always been a deal breaker so we need to give Dell the benefit of the doubt.
If the stock can make an actual breakout by trading above 17.50 (it traded at 17.24 late Tuesday) then it will target its recent high near 18.35. If it can clear that level, it will also break out to the upside from a trading range in effect since mid-2009
For a stock that has gone nowhere in three years, that would be an important event.
Michael Kahn, CMT, writes the twice weekly Getting Technical column for Barron’s Online and publishes the daily Quick Takes Pro newsletter. Follow Quick Takes Pro on Facebook.