SanDisk Corporation (NASDAQ:SNDK) — I last covered this manufacturer of flash memory storage products on Aug. 22, when shares traded near $98. I recommended traders buy SNDK stock with a stop-loss at $94.50 and a target of $105. Shares ran to a high of $104.37 on Sept. 19 before reversing and hitting my stop on Oct. 2.
On Tuesday, SNDK stock fell 2.3% following news of a downgrade to a “strong sell” by Zacks Investment Research, which was based on the company’s weak results.
Fourth-quarter revenue of $1.74 billion fell short of estimates, primarily due to supply constraints. Adjusted earnings of $1.15 per share were in line with Zacks estimate but down 28% from the same quarter a year ago. Management’s Q1 and full-year sales guidance was also below expectations.
Since then, analysts have lowered their EPS estimates by 42% for the first quarter, set to be reported in mid-April, and by 19% for 2015.
SNDK stock tracked its 50-day moving average for over a year before breaking below it in December. Then, in January, the 50-day crossed down through the 200-day moving average on higher-than-normal volume. This is known as a death cross and is a long-term bear market signal.
Shares then began to trade in a bearish recovery channel that made contact with the bearish resistance line on Tuesday, which is just below the 50-day moving average. For traders, this is an excellent place to enter a short sale.
Sell SNDK stock short at $83 with a downside target of $70, which would result in a return of 16%.
Short-selling is a speculative technique that is not appropriate for most investors. Check with your broker for any special requirements and the ability to borrow the stock. As always, a stop-loss order should be entered to protect against potentially unlimited losses.
