Editor's Note:

With the market up so strongly last week I elected to not add any longs this weekend. James will be back on Monday and he can review the options based on whether the gains stick or fail.


NEW BEARISH Plays

Dragonwave - DRWI - close: 10.45 change: +0.10 stop: 11.55

Company Description:
DragonWave is a leading provider of high-capacity packet microwave solutions that drive next-generation IP networks. DragonWave's carrier-grade point-to-point packet microwave systems transmit broadband voice, video and data, enabling service providers, government agencies, enterprises and other organizations to meet their increasing bandwidth requirements rapidly and affordably. The principal application of DragonWave's products is wireless network backhaul. Additional solutions include leased line replacement, last mile fiber extension and enterprise networks.

Why We Like It:

Something changed on DRWI back around late February. It was around the time the CEO spoke at the Pacific Crest Technology Summit. One point that came out was 82% of their revenue comes from Clearwire (CLWR) and maybe that is just too much from one company for investors to sleep well at night. One analyst suggested Clearwire might be spreading those contracts around to other companies because 82% was too much trust in one company for them as well.

Sales are through the roof and guidance was strong on their last earnings. The drop in the stock suggests somebody knows something we don't. The Nasdaq rallied strongly last week and DRWI did not. That should be a clue. DRWI also closed under the 100-day on Thr/Fri.

I am putting a tight stop on the position at $11.55.

SHORT DRWI stock, stop at $11.55, first target $8.75

chart:

Entry on March 8th at $xx.xx
Earnings Date April (unconfirmed)
Average Daily Volume: 1.2 million
Listed on March 6th, 2010


PALM - Palm Inc - close: 5.70 change: -0.25 stop: 6.50

Company Description from PALM:
Palm, Inc. creates intuitive and powerful mobile experiences that enable consumers and businesses to connect to their information in more useful and usable ways. The company’s groundbreaking Palm webOS platform, designed exclusively for mobile application, introduces true multitasking and Palm Synergy, which brings your information from the many places it resides into a single, more comprehensive view of your life. Palm products are sold through select Internet, retail, reseller and wireless operator channels, and at the Palm online store. .

Why We Like It:

PALM is getting the crap beat out of it in the smart phone market. They shutdown production of two new models in February for a month because Verizon and Sprint quit ordering them. The company tried to disguise their problems in a couple of press releases but analysts caught them in their double speak.

In late February PALM warned on revenue and earnings due to soft sales. They slashed revenue targets to $300-$320 million compared to analyst estimates for $425 million. They said full year revenue would be "WELL BELOW" their previous guidance of $1.6-$1.8 billion. PALM is likely to report 25% less unit sales than the one million previously expected. Maybe even worse.

The earnings warnings and drastic cut in sales projections suggest PALM is not able to compete in the iPhone, BlackBerry world and their potential as a takeover candidate dropped significantly.

I believe we are going to see a lot lower numbers for PALM stock. With such a dim outlook there is no reason for anyone to buy it and this could eventually be a terminal decline.

I am putting a tight stop on the position at $6.50.

SHORT PALM stock, stop at $6.50, first target $4.00

chart:

Entry on March 8th at $xx.xx
Earnings Date April (unconfirmed)
Average Daily Volume: 25 million
Listed on March 6th, 2010