By all accounts, Mellanox Technologies, Ltd. (NASDAQ:MLNX) shares should be sinking. One of its biggest customers recently reported it would be shipping less hardware for the foreseeable future, which would eventually mean less demand for the data storage and transfer technology that MLNX makes. And, the stock's still sitting in the shadow of more than a 50% selloff since September's highs; would-be MLNX buyers are simply scared to wade in, afraid the bears may not be done with the stock. Yet, a handful of subtle clues that popped up over the last several weeks implies the bulls are actually taking the reigns back.
One of those clues materialized today, with MLNX shares pushing their way back above the 20-day and 50-day moving averages. That move in itself suggests the tide has turned, but even more so given that this is the second time Mellanox Technologies has moved above those key moving averages. The first time was earlier in the month. Though that first crossover unfurled a little too fast (and the stock pulled back just as quickly), the current rally effort is forming at a much more sustainable pace.
Even this second wind for the bulls, however, isn't the only reason newcomers might want to go ahead and take on a stake. If you'll look closely at the nearby chart, there's actually a long-standing - and rising - support line (red) that extends back to early January. This rising floor is what prodded the rally in early March as well as the current one.
Were it just the cross above the moving averages or just the rising support line, the effort might be dismissible. To see them both at the same time though? That's not something to simply overlook about MLNX. To see both clues after the stock's lost half of its value only serves as kindling for a rebound effort.
As for what prompted today's bounce from Mellanox Technologies, the answer is, nothing.... at least nothing from the company. There was no third-party commentary in support of MLNX either, though, leaving only one possibility - the market's deciding that the worst-case scenario is more than baked in. And, given the size of the selloff, the impact of its customer contracting its sales forecasts, on top of the fact that investor lawsuits have been brewing since late last year, it's entirely possible the market did over-react. Now that pendulum is starting to swing the other way again, MLNX is suddenly an interesting short-term buy again.
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