"Research
negates whim."
-- Christina Nikolov
Bea Sting
by
Christina Nikolov, Founder ChartWatchCentral
Stock/Ticker: BEA Systems (BEAS)
Date: January 31, 2003
Opinion: Bearish
Current Price: $11.46
Target Price: $9.29, then possibly $7.50 and 5.70
Commentary:
After surging 205% between October 9, 2002 and January 13, 2003, shares of BEA Systems transitioned into a sideways pattern which looks like a head and shoulders top.(chart #1)Strong support can be found at the base of the head and shoulders, near $11.50. If that level is undercut, which appears to be happening, we expect minimum downside to $9.29. On the way down, the shares might also find some minor support at an upside gap near $10.00. Note: Our minimum downside target of $9.29 was calculated by subtracting the height of the pattern ($2.60) from the possible breakout point ($11.89). (chart #1)
If BEAS undercuts the above-mentioned support levels and market weakness persists, the upside gap at $5.71 could also be filled. Use caution when betting on a decline below $9, since at least three significant reversals occurred from that vicinity over the past 18 months. (chart #2)
Keep an eye on overhead resistance at $12.60 and $14.00. If BEAS attempts a rebound, there is a good chance it will stall out at or near one of those levels.
Wall Street's prognosticators expect BEA Systems to report 2002 per-share earnings of 27 cents. (Earnings are due on 2/24/03) The price/earnings multiples based on that figure is 42. Meanwhile, the 2003 and 2004 multiples are 36 and 28 respectively. In comparison, the S&P 500 touts p/e multiples of 24, 19 and 17 based on 2002, 2003 and 2004 earnings.
To profit from a decline, we suggest the March 12.50 put (Symbol: BUCOV), which is currently offered at $2.00. If you want a more conservative option, we also recommend the March 15 put (Symbol: BUCOC) and June 15 put (Symbol: BUCRC), offered at $3.90 and $4.50 respectively.
Chart(s):
#1) BEA Systems (BEAS) - Seven Month Daily Chart
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Click the Chart for an Enlarged View
#2) BEA Systems (BEAS) - Eighteen Month Daily Chart
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Click the Chart for an Enlarged View
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