How To Trade On The NetScout Shift

NetScout Systems (NASDAQ: NTCT) saw a large move in its stock price over the last few days. After trading at around the $21 mark, the holiday weekend saw it plunge towards $17. The IT services provider had cut its outlook for the year, citing budget difficulties for its government and financial-sector customers.

NetScout designs, develops, manufactures, markets, sells and supports service delivery management and application and network performance management solutions for the Internet protocol-based service delivery environments. The Company manufactures and markets these products in integrated hardware and software solution that are used by enterprises, government agencies and communications service providers worldwide.

The shares fell 19.1 percent to $17.14 on Tuesday after the company reported disappointing preliminary financial results for the recently completed quarter. The company said the results would mean lower-than-expected revenue for FY2012. Therefore, traders who are short this stock should hold their position and not initiate a new short sale. The stock is not a Buy candidate.

“We are disappointed by our preliminary results for the first fiscal quarter, which were below our expectations even for what is typically a seasonally slow quarter,” said Anil Singhal, president and CEO of the company, in an announcement. The company also said that its analysis shows that new bookings with the U.S. government suffered and that new business with financial services customers were also weak, "likely due to the profit pressure that our financial customers are currently experiencing." For fiscal 2012, NetScout is now forecasting revenue of $300 million to $315 million, down from the prior forecast of $326 million to $337 million.

ACTION ITEMS:

Bullish:
Traders who believe that NetScout's disappointing results are a temporary glitch and it will soon rebound might want to consider the following:

• The 200 day Moving Average is rising.

• Price is above Resistance of 20.36.

• Moving Average Convergence/Divergence (MACD) indicates a Bullish Trend.

Bearish:
Traders who believe that the issues with new business signal the beginning of a worrying trend may consider alternate positions:

• The 50 day Moving Average is falling

• Chart pattern indicates a Weak Downward Trend.

• Relative Strength is Bearish.

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