After the close of trading last Thursday, computing giant Hewlett-Packard (HPQ) reported in-line second-quarter earnings that resulted in an HPQ stock rally that looks conducive to more gains in the weeks ahead.
Specifically, Hewlett-Packard reported non-GAAP earnings of 88 cents per share, up a penny year-over year. Net revenues were down 1% at $27.3 billion. In terms of the outlook, HPQ is looking for third-quarter earnings in a range of 86 to 90 cents per share, which just covers the analyst expectation of 89 cents. Same goes for fiscal year earnings of $3.63 to $3.75 and Wall Street estimates for $3.71.
To some extent, Hewlett-Packard earnings numbers themselves were a nonevent, though it’s notable that the company’s sales have stabilized. More notable were continued cost cuts, as HPQ announced it would be issuing another 16,000 pink slips, in addition to the 34,000 that were already announced.
Traders and investors took a liking to all the news as a whole, pushing HPQ stock higher by more than 6% to finish off a strong bullish reversal week.
HPQ Stock Charts
As I have continually pointed out over the past eight months, Hewlett-Packard and a host of other so-called “old tech” companies have exhibited great relative strength.
Looking at the multiyear weekly chart of HPQ stock stretching back to 2002, note that shares found support in late 2012 very near where they bounced in late 2002 — some 10 years later. So far this double-bottom formation continues to work in favor of the bulls (who were unsurprisingly difficult to find in recent years).
HPQ’s strong rally off the late-2012 lows has been and continues to be technically strong, which means further upside is in the cards. Note that during the past two months, HPQ stock consolidated its strong rally right at the 50% retracement line of the entire selloff from the April 2010 top down to the late-2012 low.
Last week’s rally in HPQ stock may have been enough to get the stock moving toward its next upside target in the high $30s, which is where the 61.80% Fibonacci resistance line comes in.
On the daily chart, note how last Friday’s rally resulted in a marginal breakout of the two-month sideways move. Not surprisingly, the move came on a great spike in volume, which gives the breakout further credence.
Barring any quick and sudden reversal of Friday’s move, the path of least resistance now points higher for HPQ stock — namely, to the mid- to high $30s in the near to medium term.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.