Strength in Dell

By Phil Erlanger  MAY 30, 2008 4:10 PM

What it means for computer hardware group.

 




What the short position in Dell Inc. (DELL) and my firm's techncial rank alerted us to: After the close on Thursday, Dell Inc. (DELL) reported earnings that beat estimates and the stock is nicely higher as we close out Friday's session. The stock is a Short Squeeze (Type 1) in my work and is on my firm's weekly Type 1 Short Squeeze Screen. This will be a good week for that screen.  In the middle of May, my firm's technical rank began to improve which caused Dell to become a Short Squeeze which is why we highighted the stock on Tuesday morning.


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The reason I'm reviewing Dell is to point out why it's important to follow short interest changes and technical patterns.  Short sellers began to bet heavily against Dell starting in November and many money until early May. Often we find situations where both short sellers and owners of stocks overstay their welcome. Now they are giving up their profits. One of two scenarios are going to unfold from here post the positive earnings call.

First, the shorts will dig in their heels and press their bets increasing the fuel to the short squeeze or they will surrender and cover.  Either way the odds favor more upside and it is doubtful this is the peak in the stock.


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On a group level the Computer Hardware Group has several other potential short squeezes as well and the overall level of short selling remains high at  57%. Other stocks that can be squeezes in this group include Teradata (TDC), Stratasys (SSYS) and Silicon Graphics (SGI). One laggard in this group is Hewlett Packard (HPQ) which is now dead money until the benefits of the potential merger with EDS Corp (EDS) begin to play out. The Erlanger Short Intensity Level for Hewlett is 0% or the lowest seen in the past five years.

No positions in stocks mentioned.

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