Why Dell Fell 15% After Superb Earnings

5월 31일

To those of you who may have panicked seeing the post-market plummet of DELL, I hope to bring some solace in this analysis.

Despite the stellar earnings report, Dell's stock fell sharply post-market. This drop can be better understood through the lens of demand and supply, rather than just technical analysis or predictions. Essentially, the market's reaction is often influenced by volume and the varying valuations among traders.

To illustrate, if someone sells an ounce of gold at half its current price, it doesn't mean that gold is worth half its value. It simply indicates that the seller has a different valuation or is unable to wait for a higher price. This principle applies to Dell's situation.

Examining the volume profile (displayed on the left side of the graph), we observe that a significant portion of today's trading volume was concentrated between $166.81 and $171.01. Despite an initial downturn at market open, the Developing Point of Control (DPOC, marked by the orange line) — the price level with the highest traded volume during the given period — stayed within this range. The overall Point of Control (POC, indicated by the white line) concluded the session at $170, suggesting that before the earnings call, the market generally valued Dell around $170.

So, why the drastic drop to a post-market close of $139, with a low near $135?

To those of you who may have panicked seeing Dell's post-market plummet after superb earnings were released, I hope to provide some clarity, context, and solace in this analysis.

Demand and Supply
In economic situations, the fundamental principles of demand and supply often overshadow technical analysis and predictions. The drop in Dell's stock price might be explained through these principles, particularly focusing on trading volume. The valuation of a security by one individual doesn't necessarily represent its true market value. For instance, if someone sells an ounce of gold at half its current price, it doesn't mean the gold is worth less; it merely reflects that seller's valuation and urgency.

Volume Profile Analysis
Examining the volume profile reveals significant insights. A substantial portion of today's trading volume occurred between $166.81 and $171.01. Despite an initial dip at market open, the Developing Point of Control (DPOC)—the price level with the highest traded volume—remained within this range. The overall Point of Control (POC) for the session ended at $170, indicating the market valued Dell at around $170 before the earnings call.

Post-Market Price Drop
So, why did the price fall to close post-market at $139, with a low near $135?

Several plausible reasons could contribute to this drop. These include:

1. Layoff-Induced/Insider Sales: Employees or insiders might have sold shares following layoffs.
   
2. Short Selling: Traders might have shorted the stock, anticipating a decline.
   
3. Sell-Offs by Wealthy Individuals/Organizations: Large investors with a bearish outlook might have liquidated their positions.
   

Volume and Reduced Demand
A straightforward explanation lies in the reduced demand and supply during after-hours trading. In this less liquid environment, selling a slightly larger quantity of shares can significantly impact the price. After the earnings call, someone likely sold more shares than the market could absorb at the $168 support level, triggering a cascade of sell orders and driving the price down to subsequent support levels.

The majority of the 224K shares sold in the first half-hour post-market traded above $164.50. This selling pressure pushed the price through multiple support levels, eventually finding some stability around $146, where 186K shares were traded. However, another wave of selling drove the price down to $135 before it recovered to $139. The volume profile shows most of the trading volume between the $137-$140 range, indicating consolidation at these levels.

Conclusion
While various factors like insider sales or short selling might have played a role, the primary driver behind the precipitous and heart-wrenching drop in Dell's stock price post-earnings seems to be the thin trading volume after hours, making the price more susceptible to sharp movements.

I am still long on DELL, upwards of the 185+ all time high.

Omni out.

Feel free to ask any questions or provide suggestions. This is not financial advice.

5월 31일

노트

It seems there was a copy-paste in the beginning that I didn't originally catch.

Regardless, thank you for reading.

5월 31일

노트

As reasoned above, most analysts have raised their price targets by the tens of dollars today, even though the shares price slumped.

6월 19일

노트

For those who may have bought the dip, congratulations. The recent price target set by Morgan Stanley at $155 has certainly brought DELL back up to a better price.