Friday, February 10, 2012

Is It Time to Buy Alcatel-Lucent ("ALU") Now!

Updated Today:

 I have discover a very interesting theory a minute ago. I think it will help in our trading decision on ALU, that is why I must share with you all immediately. On Feb 10, 2011, when ALU announced a strong earning of $0.19 beating analyst estimate at $0.16, ALU rally more than 20% as per the chart below: -
After ALU rally more than 20% on the day of the announcement on the superb earning, ALU gap higher by 20% (as per the black arrow above). What happen after that? ALU continue to climb more than a whopping 45%. Thereafter, ALU share started to drop after the slowdown in earning growth announcement on May 2011 onward.

The important thing that I would like to highlight is that eventhough ALU have rally more than 13% on the recent good annoucement, I believe ALU rally might not stop here. I believe there is still another at least 30% rally for ALU.

Alcatel-Lucent Business Model

I have been looking at Alcatel-Lucent ("ALU") for a very long time since it was plunging furiously from the high of around $6.00 in 2011 April. ALU seems like dropping all the way towards bankruptcy. But is it justifiable for this once good stock to be punished like that. The answer is no. ALU is not going into bankruptcy for the near future. Instead the recent quarterly earning has shown a very good result with good growth in its quarterly earning.

So the important question is "Is It a Good Time to Jump Into ALU now, after yesterday rally of more than 13% to $2.19". The answer is a big yes with 99% chances it will be hitting the level of $2.8 for least a 20% gain in the coming future. However, there is still a 1% chances that ALU will not perform as expected. So how do we determine the 1% chance. The answer for the 1% will be revealed in the next 3 days time.

The reason why we will know the answer in the next 3 trading days because tonight closing at $2.19 up $0.25 cents for a 13% gained with a huge volume will have to be fully absorbed by the market. All those long contra player will have to cover their long position before the next upward move will be materialize. In other words, those who jump in on credit today will have to pay up for their stock in 3 days time, if they don't have the money to pay up for their stock, then they will have to sell on the 3rd day. You will see the result at the end of the third day after lunch hour or late afternoon.

Based on the long term chart, the first and important resistance is at $2.80. If ALU manages to convincingly penetrate this level, then the next level to target is at $3.90 level. I believe the $3.90 level will be penetrated in the long run, but you must be patience and to hold this stock for a long period of at least 1 year and above.

Based on the quarterly result from Google Finance, ALU has indeed improve tremendously in its revenue and also operating income. I believe overall the business turn around plan for ALU is definetely working and we could see more improvement of ALU revenue and operating income for the coming future. This stock is definetely a buy based on the fundamental analysis, I would not buy a stock if it goes up by 15% or more without any fundamental justification. Even though, before I initiate any trade, I will look and rely on technical analysis, I would also look at the quarterly earning growth as I believe it is important as well.

Disclosure: Currently I do not hold any stock in ALU, however, I might initate a buy on this stock after the next 3 days and provieded that ALU stays above the the $2.10. However, if ALU failed to hold up at least the $2.00 level, then I will not initiate a buy on this stock.

For more accurate and real time disclosure in the future, kindly visit my blog regularly because I will immediately post my online statement which I have initiated a buy position for ALU in the coming post.

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