Stock Focus – Monday, August 16th 2010

Hewlett-Packard Co.

After eight days in a row scoring bear candles (that is, having a closing price lower than the opening price), HP formed a doji candle on Friday when it settled at $40.45. Moving Average Convergence Divergence (MACD) is still pointing downwards while the EMA 50, 100 and 200 are all sloping down. Recent break of strong support at around $42.00 had turned it into a resistance level where a bounce off lows may be limited to in the near-term, followed by subsequent resistances at $43.84 and $45.27. On the downside, the loss of $39.95 (recent swing low and also 50% retracement level) may put HP under pressure to hit $36.55 (the next fibo level). Friday’s close set an ugly picture on the weekly chart as the stock broke out of a flat consolidation pattern.

Expect HP to tread cautiously next week, especially as it is poised to announce its earnings on Thursday. Arrival at a significant retracement point ($40.00) may also generate a rebound, at least in the near-term, towards $42-$43 area before heading south again. This bearish outlook could only be neutralized if last week’s high at $43.84 is broken.

Positive factor for HP early next week is the potential bounce off key support (from the near-term technical picture). Another perspective is that the stock may attract bargain-hunting after recent relentless slide. Negative factors are Hurd’s resignation which could weigh on HP again next week, resumption of Cisco effect, alleged bribery case in Russia (which is being investigated by DOJ), and bearish weekly technical outlook. Concern over global economic outlook is also potentially damaging, especially if US data fail to impress again. The wildcard lies in the earnings reports where significant deviations from the consensus could be a game-changer, at least in the short-term. Overall, HP could be a good bargain near $40, but caution is required beyond short-term trading.

DISCLAIMER: This post should not be considered as an investment advice or an offer to buy or sell stocks. It is merely a private opinion which, while compiled using sources deemed to be accurate, there is no guarantee regarding its accuracy or completeness. The author refuses to accept any responsibility or liability resulting from any use of this post. The author has no ownership over the analyzed stock(s).