HP Inc. (HPQ) and Hewlett Packard Enterprise Company (HPE) shares struggled in 2018, posting negative returns in the third full year of trading following their historic 2015 split-up. Losses may have snuck up on complacent shareholders because neither stock is a big mover compared to the tech universe, rising and falling within narrow trading ranges. Healthy dividend yields eased the pain as well, but that didn't stop a bout of December selling pressure that dropped accumulation readings to multi-month lows.
Fortunately for bulls, the swoon into year end has dropped these issues into range support that should yield multi-week bounces. Watch price action closely during this period if looking for an exit because both stocks broke their 50-week and 200-day exponential moving averages (EMAs) last year, raising the odds that short sellers will reload positions at resistance. Given bearish price structures, identical levels could be used to cut bait and hit the sidelines.
The two stocks have been trading in tandem for months now, raising the odds that they'll bounce and reverse together in the coming weeks. It's also likely that they'll retrace to key support around the same time, suggesting that aggressive market players can use a single short sale strategy to trade both issues. Just watch the calendar closely if you want to avoid the relatively big hit from quarterly dividends.
HP Inc. inherited Hewlett's long-term price history after the break-up, skewing technical readings, but three years of new data is plenty to use for longer-term prognostication. This is especially true because today's traders still examine old price levels when making new buying and selling decisions even when corporate identities change, like they do in classic merger and acquisition deals.
The stock posted an all-time high just above $30 at the height of the internet bubble in 2000 and sold off to $4.88 two years later. It has traded within those boundaries for the past 16 years, but several tests have come close. Most notably, it carved a double top with resistance at $25 between 2005 and 2011, finally breaking down in a decline that found support 27 cents above the 2000 low. A multi-year uptick reached the double top peaks in March 2018, generating an August breakout that stalled at $27.08 in October.
The stock failed the breakout in November, also breaking the 50-week and 200-day EMAs near $23, and settled nine cents under range support at the February 2018 low last month. Oversold readings now predict a bounce that tests the underside of the moving average, offering a low-risk short sale set-up for longer-term positions. The fast-fingered crowd might want to pass on the trade because it could take several months for a renewed decline to break the 2018 range and complete a long-term top.
Hewlett Packard Enterprise Company came public above $9.00 in November 2015 and fell to an all-time low at $7.03 two months later. The subsequent uptick stalled in the mid-teens at the end of 2016, giving way to a trading range that broke to the upside in January 2018. The stock posted an all-time high at $19.48 in March and turned sharply lower, finding support at the breakout level in July. Bearish price action completed a 10-month descending triangle pattern in December, yielding a mid-month breakdown that also confirmed 50-week and 200-day EMA resistance.
The decline reached a horizontal trendline going back to 2016 during the holiday week, while a bounce off that level has set off minor buying signals. A rally into triangle and moving average resistance above $14.50 could now offer a-low risk short sale opportunity, ahead of another test at trendline support. A breakdown will target the unfilled Mach 2016 gap between $8.00 and $9.00, with the top of the big hole perfectly aligned at the opening print of the 2015 public offering.
The Bottom Line
Disclosure: The author held no positions in the aforementioned securities at the time of publication.