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Rackspace Is a January Bounce Candidate

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For now it's crucial that volume remain heavy.

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Rackspace (NYSE:RAX) stock has had a rough year, down over 50% YTD, as margins have been hurt due to investments in items such as solid state drives and other technology, as well as by competition from Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG). This is reflected in the two-year-high short interest of 18 million shares, or 16.25%, of the float.

Rackspace is hoping that OpenStack momentum will improve while the investments pay off. This may be a bounce candidate into next year; however, I would suggest incorporating a strong technical discipline on the long side.

As illustrated in the weekly chart below, Rackspace shares failed and turned down from their 50-week moving average (purple arrows and line). Shares are now approaching a major support band (green lines), near $33 to $20. Volume remains heavy, thus it is key that shares hold above this area, otherwise, the next stop would be in the mid $20s.

RAX Weekly Chart


Click to enlarge

(See also: What Mobile Sensors Mean to Tech's Future: A Q&A With Rob Scoble of Rackspace)
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No positions in stocks mentioned.
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