Round Rock Bottom Redux
Back in September, we didn’t quite turn bullish on DELL but we did turn not-bearish. As we noted at the time in a post called Round Rock Bottom:
We are sorta-long DELL (we sold put options that will force us to buy shares if the share price falls below $20 by January). The basis for our position was, in part, Microsoft’s strength in early orders for the Vista operating system.Although we have subsequently discussed a serious deterioration in DELL’s fundamentals we continue to be, if not optimistic, at least not pessimistic.
We draw our optimism from the recent trend of the tape. In late July the company pre-announced its disappointing quarter. The stock opened much lower (at about $19) but rallied from the lows to close at about $20.
Thursday’s earnings report (to the extent that there was one) was a real dud. Yet after opening low, the stock rallied to close higher - one of the few to do so on Friday. We allowed the put options to expire in January and have not (so far) renewed them.
But the action on Friday begs a simple question. If Dell can close up on a down day after a lousy earnings report, what will happen to the stock if conditions improve to merely “bad?”
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