NEW BULLISH Plays

Rackspace Hosting, Inc - RAX - close 19.55 change +0.95 stop 17.95

Company Description:
Rackspace Hosting, Inc. (Rackspace Hosting) operates in the hosting and cloud computing industry. The Company offers its products under the Fanatical Support brand. The Company’s services are sold to businesses in more than 120 countries. During the year ended December 31, 2009, the Company served more than 90,000 business customers and managed more than 56,000 servers, 1,600,000 e-mail accounts, and 259,000 cloud hosting domains.

Target(s): 20.75, 21.30, 23.00
Key Support/Resistance Areas: 23.50, 21.40, 20.00, 19.00, 18.00
Time Frame: 3 to 5 weeks

Why We Like It:
M&A activity is heating up in the tech sector. Dell and Hewlett-Packard are in a bidding war over a 3Par at a huge premium 160% premium over its closing price just a couple of weeks ago. Whoever loses the bid will most likely be looking for a similar firm to acquire and there seems to be none better than RAX. Regardless of whether RAX fits the bill for an acquisition they are in the red hot cloud computing industry which is outperforming the broader market. I suggest we take advantage of the momentum and initiate long positions now. More nimble traders could wait for a breakout or time an entry on weakness. Technically, RAX is above all of its moving averages and is forming an ascending triangle. Our stop will be $17.95 and I have three targets with the most aggressive being the YTD highs near $23.00. I envision this trade lasting several weeks or more but if the stock surges we won't hesitate to book profits.

Suggested Position: Long RAX stock at current levels

Options Traders: Buy December $21.00 CALL, current ask $1.30

Annotated daily chart:

Entry on August xx
Earnings 11/9/2010 (unconfirmed)
Average Daily Volume: 1.75 million
Listed on August 25, 2010