Xerox offered $18.40 in cash and 0.149 shares of Xerox for each share of HP Inc. Xerox closed at $33.69 on Wednesday. Using that price, it values HP Inc. at roughly $23.42 per share.
It’s been a strange M&A engagement between the two, as Xerox continues to hound HP as an acquisition, despite the latter commanding a $31.3 billion market cap vs. a $6.9 billion market cap for Xerox.
Given the news, it makes HP a reasonable pick for Real Money’s Stock of the Day.
Trading HP Stock
In November, HP went on a blistering rally, as you can see on the weekly chart above. However, the stock was unable to close above the 50-week moving average and downtrend resistance (blue line).
Luckily for bulls, the stock was able to reclaim these marks in the following week, before running higher and hitting resistance between $22.50 and $23 a few months later. Shares are now struggling to reclaim the 10-week moving average, but are above the 50-week moving average.
So what is the game plan for traders?
Below the 10-week moving average keeps the 50-week in play. Should HP stock decline toward the latter, investors may consider it a buying opportunity. After all, HP did not decline to this level despite last week’s brutal decline in the broader market, and given that the 50-week moving average was support throughout the fourth quarter.
Should it fail as support, it puts the 200-week moving average and the backside of prior downtrend resistance (blue line) on the table.
If HP is able to reclaim the 10-week moving average, it puts $22.50 to $23 on the table. Above that and $25 is possible.
Here’s the bottom line: Volatility is running high in the market and M&A further complicates matters. In a way, that nagging Xerox bid is helping to keep a floor in HP stock. Should Xerox remove itself from the M&A discussion, it will likely deal a blow to HP stock and possibly drop it through support.
For now, keep an eye on the 10-week moving average on the upside and 50-week moving average on the downside.