Market Overview

Dell Filled Gap Left by Downdraft


By David Becker,

Earnings for Dell's (NASDAQ: DELL) fourth quarter released in late February fell short of analyst's expectations. The guidance given by the company was also not uplifting, but after an initial gap lower, the stock has held support. Profits for the fourth quarter fell 18 percent, to $764 million, or 43 cents a share, compared with $927 million, or 48 cents a share, in the period a year earlier. Revenue rose 2 percent, to $16 billion, in line with the average analyst estimate of $15.96 billion.

The stock has climbed back to resistance near the 20-day moving average near $17.75. After gapping lower on earnings, which has essentially filled the gap left by the downdraft. A close below the lows created on the day of earnings, will likely spur the stock, to test support levels near the 50-day moving average near $16.60. A close above the 20-day moving average will likely see a test of resistance near $19.00.

The short term 5-day moving average has crossed below the 20-day moving average, which it has been generally a sign that a short-term trend is in place. From a momentum standpoint, the MACD (moving average convergence divergence index) is gaining strength with the index moving out to -.15, which is the widest it has been during the past 6-months. The MACD created a sell signal on the day that earnings were released, as the spread (the 12-day moving average minus the 26-day moving average) crossed below the 9-day moving average of the spread.

The RSI (relative strength index) in mid-February was in overbought territory, moving up as high as 88 prior to earnings. A divergence occurred prior to earnings where prices made a new high near $18.19, while the RSI did not (hitting 71, after being as high as 88). This divergence foretold negative price action. The current RSI is near 50, which reflects a neutral rating.

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