NEW BEARISH Plays
Rackspace Hosting, Inc. - RAX - close: 30.28 change: -1.04
Stop Loss: 32.05
Target(s): to be determined
Current Gain/Loss: unopened
Entry on April -- at $--.--
Listed on April 22, 2014
Time Frame: 3 to 4 weeks
Average Daily Volume = 2.7 million
New Positions: Yes, see below
Why We Like It:
RAX is in the technology sector. The company provides web hosting and cloud computing solutions. This company has been getting squeezed from major competition in the hosting and cloud computing space for a while. Big players like Amazon.com, Google, and Microsoft are all stealing business from RAX. That competition is increasing with Google and Amazon both lowering their prices on cloud storage.
This is not a secret and there are already a lot of bears in RAX. The most recent data listed short interest at 19% of the 116.9 million share float. That can make any bounce in RAX a potential short squeeze. I would consider this a higher-risk, more aggressive trade.
Right now RAX is suffering with a bearish trend of lower highs that is about to push it through support at $30.00. The April 15th low was $29.84. I am suggesting a trigger at $29.75. We are not setting a bearish target just yet. RAX is expected to report earnings in mid May but no official announcement date has been set. We will most likely exit prior to their earnings report.
Considering the high short interest I would probably prefer to limit risk with a put option.
FYI: The Point & Figure chart for RAX is bearish with a $21.00 target.
Trigger @ 29.75
Suggested Position: short RAX @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the May $30 PUT (RAX1417Q30) current ask $1.85