Dell Technologies (NYSE:DELL) has wavered over the past few months as the post-earnings rally from May stalled out. Shares were trading at $456 on Friday, about 11% below the all-time high of $514. That consolidation faces its next test next week when the company reports quarterly results.
Options Market Points to Dell Stock Volatility After Earnings
Dell stock has shown some extreme volatility when it has published its financial results recently. It jumped by over 20% in a single day in May when it released stellar financial results. Before that, it jumped by 18% after releasing its numbers in March.
The options market is suggesting that the stock will see elevated volatility after releasing its numbers on Tuesday. For example, the implied volatility for options expiring next week has jumped to 110%, higher than the historical average of 75%.
The put/call open interest ratio has moved to 0.80, a sign that call open interest now outweighs put open interest, typically read as bullish. This, however, could also be a sign that investors are growing more nervous and hedging. Most of the call activity is concentrated between the $500 and $600 strikes, a 10% to 30% move above the current share price.
However, there is a risk that the stock may see a big dive, even when it publishes strong financial results. For example, Nvidia (NASDAQ:NVDA) stock initially rose after earnings and then erased all those gains on Friday. Other top technology companies like Micron (NASDAQ:MU) and Nebius (NASDAQ:NBIS) have dropped after their results.
Dell is Expected to Publish Strong Numbers
The upcoming results are expected to show that Dell’s business did well last quarter as the AI buildup continued. Its top competitors, like Lenovo Group and Super Micro Computer (NASDAQ:SMCI) released strong numbers.
The average estimate among analysts is that its revenue rose by 50% in the last quarter to $44.51 billion, with its earnings-per-share rising from $2.32 to $4.92. Recently, Dell has reported earnings that are significantly higher than estimates, meaning that its revenue may hit $47 billion.
Dell’s annual revenues are expected to keep rising, hitting $173 billion this year and $196 billion next year. This growth is mostly because the AI boom continues rising as evidenced by the recent Nvidia earnings. Also, most of its data center clients like Microsoft and Google committed to continue spending.
Dell Technologies Stock Technicals Point to a Retreat
The daily chart shows that Dell has remained inside a narrow range in the past few months. A closer look shows that, while the fundamentals and options markets are bullish, technicals point to a retreat.
The Relative Strength Index (RSI) has formed a bearish divergence and is nearing the neutral level of 50. Also, the MACD indicator has formed a bearish divergence pattern.
At the same time, it has formed an island reversal pattern. If this happens, the stock may drop to $356 after its report.
Image: Shutterstock
Login to comment