Hewlett Packard (NYSE: HPQ) is still fighting to exit the years-long restructuring phase under Meg Whitman’s leadership.
Things are not looking pretty for the troubled computer manufacturer. With more than twelve consecutive negative quarters when it comes to PC sales, the outlook in this market looks grim, as competition from smartphones increases by the day.
Having said that, there is one thing that seems to be a good decision made by Hewlett Packard’s management; to split the company into two different ones. One is to stick with PC manufacturing and sales, and the other one to focus on the growing services and hardware operations areas, where profit margins are bigger and prospects are far brighter.
The fact that the US dollar index is at such highs is not helping Hewlett Packard, as it is getting over two-thirds of its revenues from outside of the United States. In this respect, a strong US dollar is certainly not something to cheer about. However, the US dollar might give back its gains in the near future. There might be a strong headwind to loosen things up a bit for HPQ’s position in the years to come.
Looking at the technical picture, we have two possible scenarios based on what markets have done in the last few years, and neither looks promising.
In the first instance, looking at the five years chart, the market is forming a possible flat pattern in the sense that the c wave to the downside seems to have started, and the minimum distance to be traveled is 75% of the previous wave a. This means way lower values when compared with the current $27/share.
In the second case, the all-time chart shows a clear series of three different highs. This is the very definition of a triangle, and the fact that the market is heading for the b-d trend line now means that the triangle is part of a complex correction. Even though it is not a reversible triangle, it is enough to trigger a larger move lower.
That being said, Hewlett Packard still looks bearish, and I am favoring put options from the current levels whilst keeping the b-d trend line in sight as that is supposed to come in around the $16.5/share.
It is unlikely the NFP numbers, the FOMC statement and the interest rate decision in September is not going to help much. Current global stock selling should only add further fuel to the fire, therefore the recommended striking price should arrive after the end of August. A one-month expiration date should help the option expire in the money.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
