RHT, RedHat update

RHT dec 14 2014 1RHT dec 14 2014 2

Redhat is the company most involved with the “open source” Linux operating system. Back in 2012,at about $62, we thought it was a sell. It was initially but it came right back and made a marginal new high (for this run, once it was at about $140), so you would have simple wasted two, almost three years time. Now we have a fairly clear pattern, a diagonal or in plain English a wedge. They come at the end of the ride and we think this is the end. But before you get too carried away we would like to point out that these wedges are masters at deception and sometimes they run for longer than you would expect, as in the chart on the right. We do not expect that at all this time but just want you to be warned. The beauty of all this is that, either way, this stock should not trade above $65 and should, again in both cases, trade below or at $42. This is a very high confidence situation so your risk/reward ratio can be much lower. Choose the spot that fits your style best. If you do not have a style then just sell short at $60 or above, get out of any longs now and very definitely if the stock breaks the lower boundary line.

55 June 2015 put options are trading at $4 offered and , for some, this might be the best strategy.

RHT, Red Hat Inc.

These fellows are proponents of the open architecture approach to computer software. They trade at a p/e just under 70X. The charts are not perfectly clear, unfortunately, nevertheless I would be inclined to lighten up on this one.

RHTrht s

The stock comes from $140 or so in 2000, a 62% retracement could conceivable take it back to about $90. On the other side of the equation there is the rather high p/e, the fact that the stock has done a ten bagger, and that it is trading at the upper end of the channel. Most importantly the last little squiggle is clearly corrective and therefore a drop at least to below $48.50 should be next. Looking at a semi-log chart it is also possible to argue that the correction after the tech crash is coming to an end, this view would rhyme much better with the Nasdaq and other tech stocks.

rht log