Dell Technologies Inc (DELL) reports earnings on Thursday August 29, with Wall Street analysts expecting profits of $1.49-per-share on $23.3-billion in second quarter revenues. The company beat profit expectations while coming up short on revenues in May’s first quarter report, triggering a high volume breakaway gap and downtrend that’s carried over 30% into late August.

Founder Michael Dell took the company private in 2013, seeking to lower volatility driven by declining PC sales. It carried high debt into 2018 and chose to reliquify by going public once again after the $24-billion VMWare Inc (VMW) merger. That stock continues to trade on the NYSE, with Dell as majority owner. Meanwhile, the new DELL stock opened at 46 in December at the same time that broad benchmarks bottomed out after the fourth quarter selloff.

The return to public life hasn’t worked out well in recent months, with the stock topping out in May after a healthy uptrend posted an all-time high at 70.55. It sold off to the IPO opening print just last week, forcing newly-minted shareholders to give up the last gains posted since that time,  Sadly, VMW has become a major noose around its neck, topping out at the same time in May, ahead of a 30%+ decline to an 8 month low.

And things could get worse in coming weeks. Both stocks are trading sharply lower on Friday morning after announcing that VMW is buying Pivotal Software Inc (PVTL) in a complex deal that raises DELL’s VMW stake to 81% and adds fresh debt to the books. VMW has just hit a new 2019 low after dropping 8% while DELL has turned south and is headed into a critical test at last week’s 7-month low.

DELL Daily Chart (2018 - 2019)

DELL
TradingView.Com

The stock bounced for a few days after coming public and sold off to an all-time time at 42.02, ahead of a multi-wave uptrend that topped out just above 70 in May 2019. The May 30th gap ended the uptrend, yielding a decline into 50 where selling pressure came to an end in June. Price action carved a bottom into July and ticked higher, posting a lower high and double top at the 50% selloff retracement level earlier this month.

The subsequent decline broke June support and hit new lows into August 15th when the stock bounced within a few cents of the IPO opening print (black line). Sellers returned in force this morning after a 5-day bounce, raising odds for a breakdown that will drop all shareholders into losing positions. More importantly, price action has been testing the critical .786 Fibonacci rally retracement level, with a breakdown exposing the all-time low at 42.

The on balance volume (OBV) accumulation-distribution indicator posted an all-time high a few weeks ahead of price and entered a modest distribution phase that hit s 5-month low in July. OBV is still trading close to that level and could break down with price, adding another batch of sell signals. It’s hard to be more predictive with this indicator because the most important volume patterns are carved over the course of years, not months.

Remaining bulls need to remount resistance at 50 after a buy-the-news earnings reaction in order to improve the bearish technical outlook. Even so, two big unfilled gaps are chock full of disgruntled shareholders who will be looking to get out if rallies reach the 56 and 63 levels. Taken together, the stock is likely to require months of improved sentiment and growth statistics to get back in the winning column.

The Bottom Line

Dell Technologies is testing August’s 7-month low after partner VMWare announced a complex acquisition and could break December’s IPO opening print.

Disclosure: the author held no positions in aforementioned securities at the time of publication.