Hi MJ,
SUNW is in a long-term downtrend now:
stockcharts.com[w,a]daclyyay[dd][pb50!b200][vc60]&pref=G
After failing dramatically at the beginning of the year, SUNW managed to tread water at chart support at the $4.00 - $4.20 region for a while, but then that support just collapsed, as you can see in the above chart. SUNW has now satisfied all criteria that define a long-term downtrend. That alone should raise warning signs---in general, it is better to take long positions in stocks that are in an uptrend, IMHO. There are exceptions, but they are not numerous.
SUNW gapped up impressively on Friday, only to sell off even more impressively on 4 times normal volume. My guess is the major reason for that was all those people who got left holding the bag when SUNW dropped out of the $4.00 - $4.50 trading range took that opportunity to get out of the stock and lick their wounds.
There are technical buy signals in place:
139.142.147.218
The intraday chart also suggests upside at the open on Monday:
139.142.147.22
Despite the buy signals, I don't think SUNW will last long. Best case scenario, it manages to huff and puff up to the top of the BBs (currently $4.28). But the pressure is clearly down for SUNW. I think in the medium term, SUNW is likely to move back down to retest support at $3.50. And that level looks pretty shaky to me.
$3.50 is long-term chart support that has been successfully tested several times, but the bottom of the regression channel sits at about $3.00, even if you adjust the settings on the time:
139.142.147.218
So I think SUNW will see $3.50 soon, and probably within the next month or two will drop down to test the lower regression channel rail. THAT would be a good place to reconsider a long entry, IMHO, even though SUNW would still be in a downtrend at that point. The odds of reversal at that level are fairly high, but you'd have to examine the volume patterns etc. as SUNW approached those levels. My guess is that buyers would jump all over SUNW at that point, particularly since the general market will be in rally mode by that time.
There are not many shorts in SUNW, so you can't hope for wind at your sails from a short squeeze, and obviously that's not what happened on Friday.
finance.yahoo.com
Bottom line, I can't see a lot of reason to get excited about a long position in SUNW, and I see a whole lot of risk there that just isn't worth the possible gain. The trend is down in the long-term and medium-term, and trying to take short-term long positions in a failing stock is a very risky game because most of the volatility is to the downside, so the stock can move against you very rapidly. Just look what happened in the afternoon on Friday, and you'll see what I mean.
But you should know this, too, just in case you still have an idea that SUNW is gonna charge northwards.
There was another reason for Friday's candle, besides bagholders getting out while the gettin' was good: flat manipulation. On April 26, there was tremendous options activity in SUNW. Some big boys were taking up both long AND short positions at the $4 strike for October, no doubt simultaneously. Then, 2 days later (what a coincidence!), this bit of news:
According to Business Week, Sun Microsystems (SUNW) CEO Scott McNealy is considering taking Sun private with the help of Silver Lake Partners, says a hedge-fund manager close to McNealy and the private equity fund. Silver Lake has done LBOs for Seagate Technology and SunGard Data Systems. This manager sees an LBO offer of $5 to $5.50 a share. Sun's cash stash of $7.5 bln, or $2.50 a share, makes an LBO doable, he says. The idea is to shrink Sun by selling assets, bolster its core hardware, software, and service businesses, and go public again. Spokespersons for both Sun and Silver Lake declined comment.
Right. A buyout of a $11.6 billion company that has gone nowhere in the last 3 years. Anybody with anything close to the kind of capital that would be required to pull off a LBO on an $11.6 billion company at a takeover valuation of more like $13 billion (net $5 billion at least, after the cash is used up) sure isn't THAT stupid. Anyhow, that news was followed on Friday by THIS:
Sun Micro squashed leveraged buyout rumor -- In a CNET News.com story, Sun Micro (SUNW) CEO Scott McNealy calls a BusinessWeek report that suggests an investment firm is planning a leveraged buyout of the server and software company, "unsubstantiated", and part of a scheme to profit from a stock price boost. "Why would a supposedly credible rag like BusinessWeek quote an anonymous hedge fund guy on a totally unsubstantiated rumor designed to spike the stock price?" McNealy wrote to CNET News.com. "I will bet this hedge guy is laughing his butt off that BusinessWeek printed this as he profits from the $0.42 rise in the price this morning."
So you get the picture: the hedge fund takes long and short options positions, the stock gaps up, they book profits on the long, and hang with the short that expires in October. They're sittin' pretty right about now on a pretty low risk options position, thanks to the big payoff from the long options position. They can't lose, now. Next, they'll probably get some analysts to issue downgrades on that stock, just about the time it moves down to test support. That oughta do the trick, then they'll be laughing all the way to the bank on both the long AND the short position, and buy themselves a tropical island or two with the windfall.
Personally, I wouldn't touch SUNW with a 10-foot pole, long OR short.
T |
