Flying With VMWare

10/08/09 02:58:31 PM

by Koos van der Merwe

VMWare is a stock that reached the stratosphere and as the market collapsed, fell like Icarus as its wings melted. Today, it looks as if those wings have been repaired.

Security: VMW
Position: Buy

VMWare (VMW) is a leader in virtualization solutions, bringing cloud computing to businesses of all sizes. With 2008 revenues of $1.9 billion, more than 150,000 customers and more than 22,000 partners, VMWare is one of the fastest growing public software companies. Headquartered in Palo Alto, CA, VMWare is majority-owned by EMC Corp. (EMC).

FIGURE 1: VMWARE, WEEKLY

Graphic provided by: AdvancedGET.

Figure 1, a weekly chart of VMWare, shows how the price has fallen from a high of $125.25 in November 2007 to a low of $17.25 by November 2008. Since then, the stock price has been gradually climbing, testing, and breaking resistance lines on its way up. The price is currently testing and has a high that peaked above the present resistance level of $41.41. A strong move above this level will suggest a strong buy with the next resistance level at $72.08. Volume is average, and the relative strength index (RSI) is still rising.

FIGURE 2: VMWARE, DAILY

Graphic provided by: AdvancedGET.

Figure 2, a daily chart, shows that the price is currently testing the upper resistance trendline at $42.74 after bouncing off the resistance line drawn parallel to the support line from tested pivot points. The RSI is falling, suggesting further short-term weakness ahead.

FIGURE 3: VMWARE, BUY CHART

Graphic provided by: Omnitrader.

Figure 3 is an OmniTrader chart showing the following:

1. Price with a trailing stop showing blue as a buy signal and red as a sell signal. The chart shows that a buy signal was given four days ago.
2. Buy high indicator when the closing price is greater than the price of four days ago. This indicator gave a buy signal three days ago.
3. Tom De Mark indicator. This indicator gave a buy signal six days ago and repeated it.
4. The Carter squeeze indicator, showing that the price is rising in a buy signal.
5. The stochastic RSI cycle indicator, suggesting that the price is at oversold levels and rising. A buy signal has been given.
6. The vote line, showing that a buy signal was given four days ago.

With VMWare, Icarus seems to be flying once again. Wings have been repaired and without a doubt, as the Dow Jones Industrial Average (DJIA) recovers, so will VMWare. The share is a buy at present levels, with a target once it breaks above the resistance levels of $70.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.