Hewlett-Packard’s Must-See Charts Show Vulnerability for the Shares

 

NEW YORK (TheStreet) -- The turnaround story for Hewlett-Packard (HPQ) began from a multiyear intraday low at $11.35 set on Nov. 20, 2012. From that low the stock rallied 237% to a multiyear high at $38.25 on September 4.

Let's analyze the daily and weekly charts to assess the downside risk for Hewlett-Packard following the company's guilty plea to felony charges that former employees bribed Russian government officials on a technology contract.

Here's the daily chart.

Courtesy of MetaStock Xenith

From the lower left to the upper right you can see the 237% turnaround story rebound. The hiccup below the 200-day simple moving average (green line) on Sept. 23, 2013 bottomed at $20.25 on Oct. 8, 2013. In my opinion, the catalyst for this decline was the decision to remove Hewlett-Packard from the Dow Jones Industrial Average, which occurred on Sept. 23, 2013. This weakness proved to be a buying opportunity when the stock popped back above the 200-day on Oct. 9, 2013.

A close Friday below the 21-day simple moving average at $36.93 is a short-term negative, indicating risk to the 50-day and perhaps the 200-day SMAs now at $35.71 and $32.02, respectively. Remember that I consider the 200-day SMA as the short-term reversion to the mean.

Let's take a look at the weekly chart:

Courtesy of MetaStock Xenith

The weekly chart for Hewlett-Packard goes back 20 years and shows the 1999/2000 tech bubble. This chart shows the importance of the 200-week simple moving average as the longer-term reversion to the mean. The stock gapped below its 200-day at $40.17 in late October 2000 and the July 2002 low was $10.75. A breakout above the 200-week in February 2005 triggered the rally to its November 2007 high at $53.48. The gap below the 200-week at $44.33 in February 2011 began the down trend to the multiyear intraday low at $11.35 on Nov. 20, 2012, as shown on the daily chart.

Today the weekly chart is positive but overbought, with its five-week modified moving average at $36.21. The downside, given a weekly close below the five-week MMA and with its 12x3x3 weekly slow stochastic declining below 80.00 (red line in the study at the bottom of the graph), indicates risk to its 200-week SMA at $27.70.

Investors looking to buy Hewlett-Packard shares should consider using a good 'til canceled limit order to buy weakness to a quarterly value level at $30.97.

Investors looking to sell Hewlett-Packard shares should consider using a good 'til canceled limit order to sell strength to monthly and annual risky levels at $39.40 and $40.20, respectively.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @Suttmeier

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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