Thread: comments on NTAP?
LT chart: stockcharts.com[h,a]dahlnimy[d19950101,20010801][pf][vc60][iUa12,26,9]
As you can see, this was one of the go-go stocks of the Bubble, going from the 10/98 low of 4, to the 10/00 peak of 152. Immense volatility. Since that peak, the collapse has been breathtaking. For a while, it looked like support might be forming in the high 40s, but then the plunge resumed. As you can see, the stock is now down to where so many techs have gone, back to the early-1999 level, the shelf reached after the first ramp-up from the 10/98 lows.
ST chart: stockcharts.com[h,a]dahlnimy[d20010301,20010801][pf][vc60][iUa12,26,9]
Now, in the last 4 months, we have formed a channel, defined by a double top at 29 in May, and a double bottom at 11 in April and June (and maybe yesterday also, if we bounce off it). This range, 11 to 29, offers lots of profit opportunity for trading. It worries me, however, that the recent low was (slightly) lower than the April low. For now, I'm calling it a double bottom, until we definitely break to single digits.
NTAP has warned, and will probably warn again. EMC just warned, and took out its April low, collapsing on high volume. This sector is out of favor, and will probably stay that way for a while. But, everyone agreas that this sector has LT growth prospects superior to just about every other tech sector. So, the battle between the bulls and bears will continue, with wild swings in sentiment. Periodically, we will have panic buying, as everyone wants to be on board when there are any whiffs of suggestions of a ghost of a hope of improving fundamentals. And this will be followed by panic selling, as everyone tries to avoid the next halving of the stock prices (which is what's happened so far to anyone who tried to buy the dip, or, worse yet, buy the rally). So I expect continued volatility.
So, how do you play this channel: long or short? When this stock goes back into favor, it has demonstrated the potential to double and double and double again. You could short at 28, good news comes out after the bell, and the stock opens the next day at 40. Or 50. Stop-loss orders aren't going to save you. Too risky, IMO.
OTOH, playing the long side (buying at-the-money calls at 11-13, and selling at 17 and 28) will be a disaster, if the stock breaks below support. Since profitability has just about disappeared, and so has visibility on future earnings, the stock could easily go to 5, if 11 doesn't hold. But, this company has no debt, and has a franchise in its niche. The stock is not going to zero (something you can't say about any company with a lot of debt, in today's macro climate).
The way I'm playing it, is to buy OHDAD (2003 Calls 20s), when the stock hits 13, 11, (already done), with additional limit orders to buy in the event we go to 9, 7, and 5. Then, I will lighten up, selling some when the stock rallies to 17 and 27. I won't sell all, as I intend on holding some till mid-2002. And, when the 2004s become available, I'll start buying those (assuming the stock still is at 13 and below).
If I was just trading the channel, I'd buy at-the-money shorter-term calls.
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