by Jon Markman | October 18, 2012 7:00 am
Stocks started this week on a downbeat note but quickly got boosts thanks to new data out of China suggesting that its September manufacturing and exports have not fallen off the face of the earth. Better-than-expected September retail sales and positive comments from Fed officials regarding the Fed’s 2% inflation target also amped up stock prices.
However, the vigor that we’re seeing in the market doesn’t look to extend to all sectors. Most notably, Intel (NASDAQ:INTC) and IBM (NYSE:IBM) — two giant tech firms that usually perform well — delivered uninspiring earnings reports after the bell Tuesday, sending shares down 2.5% and 5%, respectively.
Despite rises in consumer purchasing, analysts are blaming a lack of demand by both commercial consumers and businesses for each companies’ weak earnings reports.
Compared to what I would consider a normal October, the time of year when technology companies usually gain strength, this year is different. But to turn one company’s lemons into our lemonade, let’s take this opportunity to short-sell one such tech stock — Quality Systems (NASDAQ:QSII).
Quality Systems is an electronic medical records firm that has been under pressure from several rivals. It began rebounding in August, but has since rolled over. If you have the power of margin account, take advantage of a dip in QSII by selling to open (short) QSII at $17.40 or lower for a target of $15.
If this starts to work, I might recommend adding puts, though they are a bit thinly traded. That’s why right now, shorting QSII shares is the better strategy.
Also keep in mind the company reports earnings on Oct. 22, so there might be some near-term volatility in QSII. I haven’t yet set a stop-loss, but for your own comfort, you might consider employing an upside stop-loss price at which to buy back and cover to exit the trade.
Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage.
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