Dell Shouldn't Fell Most PC Makers

Editor's note: This story was originally published earlier on Aug. 12, and has been updated to correct an error.

In light of the negative reaction to Dell's(DELL) poor quarterly showing, it's worth revisiting the stock, to see just how vulnerable it is now. But the profiles of three other computer manufacturers show that Dell's fall in the well today shouldn't be too disastrous for the sector.

First, let's look at what the market reacted to. Dell's second-quarter EPS was in line with consensus analyst expectations, at 38 cents, but sales missed. Sales for the quarter were $13.4 billion, higher than the same quarter last year but short of the expected $13.7 billion. The company expects third-quarter sales of $14.1 billion to $14.5 billion and EPS of 39 cents to 41 cents. The Street anticipated that Dell would offer third-quarter EPS guidance of 41 cents on sales of $14.6 billion. This soft guidance is what prompted the negative market reaction.

In the earnings preview I filed Wednesday, Dell had an overall unfavorable weekly chart profile going into the earnings report and also was 4.4% undervalued. With this type of profile, the stock became vulnerable in the event of an earnings disappointment, which proved to be the case. The stock needed a weekly close above its five-week modified moving average at $40.05 to confirm upside leadership potential. Now that seems highly unlikely, given the negative reaction to its quarterly results. Dell is currently below my monthly pivot at $38.94, and that means the stock could begin to trend toward its 52-week low of $32.70.

What's interesting about Dell is that shares gapped higher three months ago on a positive reaction to earnings. At that time, there was a price gap from the May 12 high of $37.10 and the May 13 low of $37.75, and the upside from that positive trend reached a high of $41.99 on July 20 vs. my semiannual risky level at $41.12, meaning that a major upside objective had been achieved. So far this morning, Dell shares are below the May price gap, which makes that zone strong chart resistance.