The computer hardware sector started 2010 off with a bang, but the group has since fallen on hard times. In fact, the NYSE Arca Computer Hardware Index (HWI) has shed more than 5% on a year-to-date basis, compared with the tech-laden Nasdaq composite index’s (COMP’s) loss of about 1.5% for the same time frame.
What’s more, HWI’s downtrend could be gaining momentum, as the index has pulled back below its 160-day moving average, with this trend line rejecting the shares soundly earlier this week.
Despite its poor performance, investors remain bullishly aligned on the hardware sector. For instance, more than half of the 913 ratings on hardware sector stocks are “buys” or better. As HWI’s ( HWI – news – people ) price action weakens, these bulls could be forced into abandoning their losing positions, thus resulting in additional downward pressure on the sector.
Within the hardware sector Seagate Technology ( STX – news – people ) is a prime example of the group’s poor performance. After the close on July 20, STX posted a fourth-quarter profit of 76 cents per share, missing the consensus estimate by two cents per share. The stock responded by plunging more than 9.5% the following session. But STX’s poor price action began long before the company’s poor quarterly results hit the Street. In fact, the stock is sitting on a year-to-date loss of more than 30%, far outpacing the COMP’s loss for the same period.
Since late April STX has been pressured lower by resistance at its declining 10-week moving average. The stock has not closed a session above this intermediate-term trend line during this time frame. Currently STX is reeling from its latest rejection at its 10-week trend line, with the shares breaking out to fresh multi-week lows below former support at the $13 level in the process.
On the sentiment front, no less than five analysts have cut their price targets on STX, while Brean Murray Carret and S&P Equity Research downgraded the stock from “buy” to “hold.” There is still plenty of room for other brokerage firms to follow suit, as Zacks reports that 13 of the 23 analysts following the stock still rate it a “buy” or better. What’s more, Thomson Reuters reports that the average 12-month price target for STX rests at $23.86 per share–a whopping 90% premium to the stock’s current trading range near $12.50 per share. Additional downgrades or price target cuts could create additional headwinds for STX.
source: forbes.com
