Monday Morning

Gator's Chart of the Day: STX

Seagate popped up on many scans as a result of Friday's action.  The huge volume spike was caused by STX replacing Progress Energy (PGN) in the SP-500 Index.  The stock also made a third test of the the 24.75 area that has been resistance for nearly three weeks now.

Fundamentally the stock is priced like it's going out of business.  It has a dividend yield of 4% and a forward P/E of 2.74.  Analysts recently announced targets ranging from 13 to 42.  (I would ignore the 13 as the analyst also rated the stock "Hold.")  Practically speaking STX has only one competitor, WDC.  Seagate has a much larger share of the market and seems like it has more upside as well.  Western Digital has a forward P/E of 3.45 with no dividend.

The Trade
A move above 24.80 on above average volume would indicate buying interest and I think a small buy could be made with a stop back in congestion just below the 20 day simple moving average.  I don't think this one will run away and there will be time to fill out the position on a pullback and bounce from support.  I would expect the stock to challenge the 50 day simple moving average before August and when it does I would tighten stops on most (or all) of the position.