Through TheFly's Eyes: Nokia Corporation
Nokia (NOK) is up $1.00 to $21.20 in intra-day trading today after raising its 2006 mobile device growth to 15% from 10%. Appropriately, analysts are reacting positively to this news. American Technology Research reiterated their Buy rating because the increased forecast gives the firm confidence in their Street high handset estimates for 2006 and 2007. Piper Jaffray maintained their Outperform and raised their guidance, saying they expect margins to expand.
Other firms focused on the broader effect of the announcement. JP Morgan Chase saw the announcement as a positive for Motorola (MOT) and Qualcomm (QCOM). American Technology Research notes that Texas Instruments (TXN) and supplier Silicon Laboratories (SLAB) as beneficiaries of Nokia launching three new phone models.
The Nokia announcement propelled the telecom sector higher in mid-day trading Thursday. Nokia was up $1.00 to $21.20, Erickson (ERICY) rose $1.05 to $39.25, Motorola (MOT) gained 45c to $22.30, and Siemens (SI) rose $1.90 to $93.80. Wall Street’s initial response to Nokia’s update appeared to one of confirmation of continued solid economic growth, globally, despite recent economic headwinds and hurdles. Persistently high oil prices, rising short-term interest rates in the U.S., and the prospect of decelerating earnings growth had given some on Wall Street fodder to charge that the economic expansion was fading, but Nokia’s bullish forecast has dispelled much of that concern, at least for the immediate future. Nokia is considered a growth bellwether because mobile units/cell phones are thought to be one of the first, optional consumption items consumers eliminate during an economic slowdown. Conversely, robust projections from Nokia – which manufactures 1 in 3 of all mobile handsets used globally – are viewed by analysts as a sign of solid consumer demand, and undoubtedly, as a sign of above-trend GDP growth globally, particularly in the developing world. And there’s nothing like above-trend GDP growth to gladden investors’ hearts.
Nokia’s April at the money option implied volatility is 31, May at 25 and July at 24. The intra-day call option volume of 10,451 contracts compares to intra-day put volume of 8,291 contracts. Differential of option implied volatility indicates differing views on Nokia’s risks, says our Options strategist
Our Technical analyst notes that Nokia’s stock has actually been moving up nicely, and somewhat stealthily, for the last several months. This is typical of a stock coming out of a long base (trading in a narrow horizontal channel where the stock appears to be going nowhere, or is "dead money") where the trend-line is polynomial (it curves and more closely resembles a power function than a straight line which eventually, if the trend holds, becomes parabolic).
The stock in addition appears to be clearing years or prior overhead resistance which is very bullish in these "long base breakout" situations. Base breakouts are tricky because one can never be quite certain that the stock is not simply coming up to the top of the prior range and might simply trade back down. That is why waiting for the actual breakout instead of anticipating it is so important. This can best be done by drawing a rectangle around the base so that it will be clear when and where the top of the base has been broken.
The most easily seen bullish aspect of today's move is the bullish gap-up (price jumps without trading in between two distant prices). Generally speaking gaps beget gaps if the trend is strong enough and gaps tend to be separated by prices continuing in the direction of the gap. In other words it is a signal that prices have a higher probability of continuing to rise.
For Nokia, which still faces many layers of overhead resistance from the go-go 1990s, the next resistance levels to watch (upside objectives) are as follows: $21.53, $21.88, $22.30, $22.69, $23.16, $23.52. As each level is surpassed, it becomes support (a place to put protective stops or add to positions depending on holding period and risk tolerance). Current support for today is at the low ($21.04 as this is written) and at the last peak nearby on the chart at $20.77. A breakdown which starts to "fill the gap" (price moves back into the clear gap on the chart, in this case between yesterday's high at $20.34 and $20.77) would be bearish suggesting the move is a "false breakout". These do happen so it is important to be aware of this signal and its importance in gauging whether this is "exhaustion " (end of a move) or a breakout (start of a move).
Thursday, March 30, 2006
Through TheFly's Eyes: Nokia Corporation