"Our latest Focus Stock is a bullish play on Dell Computer (NASDAQ: DELL)," says Chris Johnson, who uses both a technical and contrarian-based approach in his Insightful Investor.
"Dell Computer is one of the largest retail computer manufactures in the world. The company supplies businesses and consumers with PC computers, printers, and other peripherals.
"For years, we've watched Michael Dell's company languish, as a slowdown in PC demand combined with a saturation of the PC market caused DELL shares to fall more than 50%. Now, after spending the past four months trading around the 20 mark, the stock may be ready to make a short-term run.
"From a technical perspective, the stock has recently built a bottom around the 20 level. This comes after bouncing from the lows near 18, which also represents the lows during the bear market started in 2000.
"On a shorter-term technical basis, the shares' technical trendlines have formed a bullish signal with the 20-day moving average crossing above the 50-day trendline.
"Sentiment toward DELL remains pessimistically tilted, especially among options players and the shorts. The most recent data shows a sharp increase in short interest, taking DELL's short-interest ratio from 1.6 to 2.5. This means significantly more shares will need to be covered should the stock continue to move higher, a good sign for the bulls.
"Similarly, the stock's put/call ratio has been on the rise, indicating that the options crowd is becoming increasingly skeptical toward the recent rally. This added pessimism means more potential buying power once this sentiment begins to unwind.
"Given the bullish sentiment and technical backdrops, we believe that DELL is poised to continue its run. As such, we are adding the stock to our Insightful Investor portfolio. For those who'd prefer to leverage the stock's expected strength, we recommend buying the DELL July 20 call."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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