Dell Falls On Weak Outlook

The market is taking no prisoners and continues to spread like “a blob” through all sectors. Gold, Energy, Financial, Housing and Tech stocks continue to get sucked up into the market’s downward pressure and the only question now is how low can we go?

Dell (DELL, $15.98, down $2.01) once again warned about “”further softening” in technology spending and its stock promptly fell over 10% on Tuesday. It seems like another “cry wolf” cliche but we already knew that Dell was suffering. For investment relations, Dell has to tell it like it is and it’s a shame I didn’t recommend buying puts after the company reported a lousy quarter three weeks ago.

At the time, the company reported a 17% drop in earnings after lowering prices and taking some restructuring charges. Lowering prices made sense to a degree but not when you have to mortgage the ranch. Dell lowered prices in an attempt to gain market share but the weak global economy is keeping customers on hold.

Dell is also in a costly battle with other big names in the industry for shelf space at retailers. Although this is new territory for the company, Dell has done well in this area but what made them so good was their ability to ship PC’s direct which helped transform the industry. Now it looks as though Dell is playing catch-up to the Hewlett-Packard’s (HPQ, $48.41, up $3.08) of the world.

Dell hit a new 52-week low of $15.68 before closing slightly higher. The September 17 puts (DLYUR, $1.21, up $1.09) were the lottery play of the day on Monday before the market closed. They were up a staggering 900% as Dell opened at $16 to start the trading session. Better days are ahead for the market (and Dell…I think) but not right now.

Rick Rouse
Rick@OptionsMentoring.com

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