As the Nasdaq and S&P 500 Sold Off, this Small-Cap Tech Stock Rocketed Up; Why?
For stocks to find a way to rise amid a wide market sell-off there must be very real underlying strength. The 9.5% rally by Extreme Networks on Tuesday is a perfect example.
The news that the firm is joining the S&P Small Cap 600 provides an obvious impetus for the strong rally. However, there’s a far more important factor for the stock’s grand success over the past year: big earnings growth and a turnaround in the top line in fiscal 2017. Extreme Networks will replace Time in the S&P 600 after the market closes on Thursday.
Extreme Networks stock volume got boiling hot on Tuesday, rising almost seven times its 50-day average. And the relative strength line rose in a vertical-like fashion, virtually hitting new high ground.
When the S&P 500 is down, a stock’s Relative Strength to the market can rise if the stock falls less in percentage terms. In Extreme Networks’ case, the stock vastly outperformed on Tuesday.
The small-cap member of the computer networking IBD industry group has vaulted more than 610% from a July 2015 low of 2.10.
The recent breakout is from an early-stage base, not late stage. Why? Extreme rebounded back above 10 a share in early June, then formed a 12-week base.
In general, begin counting bases only when a stock is trading at least 10 a share.
Extreme cleared that odd-shaped base with an 11.13 buy point during the week ended Sept. 1, 2017. Volume that week soared 59% above the 10-week average. That’s good. It tells you that hedge funds, large investment advisors, mutual funds, and banks are falling over each other to get shares at a reasonable price.
Extreme rallied 18.5% over a six-week span. Not quite enough of a gain to begin a new base.
Right now, I am just waiting for evidence. The recent overall market sell off is over and then this one is top of my watch list for a buy signal.
Extreme is slated to report results for the December quarter on Feb. 6 after the close. The Street sees earnings rising 8% to 13 cents a share on a 63% jump in revenue to $997 million. The big top-line jump is likely the result of an acquisition of Brocade Communications’ data center business, completed in October.
This could be a great one once the market trend becomes once again our friend.