Hewlett-Packard left behind an ominous spike high just shy of its downward-sloping 200-day moving average on May 22. Last week it returned to its May low after breaking key trend line support that linked the March and May lows.
On Monday, Hewlett-Packard stock is falling below last month's low of $32.20 and appears headed lower. With an additional 2% of downside, the stock will reach a major support zone.
For patient Hewlett-Packard bulls, a very low-risk entry opportunity is approaching. As the stock begins to dip below $31.60, it will begin to pierce major support that includes the stock's Oct. 15 spike low as well as the second-quarter low of 2014. The lower band of this zone is marked by this year's low of $31. Hewlett-Packard bottomed here in late March, retested the level in early April and then mounted its first healthy rally of 2015. This rebound ended abruptly on May 22 after shares gained 15% off the March/February lows.
As Hewlett-Packard drifts back down to the lows, its downside trade has been running well below average. In addition, a divergent low in the moving average convergence/divergence indicator appears to be developing. This setup should be viewed as positive for Hewlett-Packard bulls.
If the stock can build a new base here, another significant rebound could be on the way. A close below $30 would indicate that more downside, and a much more prolonged base, will be needed before Hewlett-Packard can return to rally mode.