To Buy or Sell Oracle (ORCL): Listening to My Gut

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Every now and again the trader in me rears its ugly head. I can look at a stock, starting with a desire to recommend, then get an overwhelming urge to sell it. Sometimes this is down to a short term technical analysis... the stock is close to a solid resistance point or at the top of a channel for example, but sometimes it is just a feeling.

I know, I know... most people who are interested in markets have had it drilled into them time and time again that feelings are a terrible basis on which to trade or invest; one should always rely on detailed fundamental and technical analyses, preferably very complicated ones provided by a friendly broker! Call me a cynic, but when employees of Wall Street brokerage firms and mutual fund companies preach the value, even the essential nature, of their advice, I begin to experience a selective deafness. Has anybody else noticed how, as basic information has become more freely available, so the kind of (paid) analysis that we are told we need has become more complicated and esoteric?

Anyway, the kind of feeling I am talking about came to me as I began to look at Oracle (ORCL) yesterday. There are sound fundamental, long term reasons to buy the stock, according to many observers. After earnings disappointments in February and May and, more importantly, lower than expected guidance, ORCL had a disappointing 2013 for investors. A rally following the December earnings release got the stock to a high over $38, but it still closed the year with gains of around 12% versus 30% for the broader market.

ORCL chart

I read articles and saw talking heads on TV, most of whom asserted that ORCL was turning around and that a disappointing 2013 just set up the stock for a banner year in 2014. The more I think about it though, the more that December earnings release underwhelms me. Sure, there was a small beat on the top line, but revenues were basically flat. The buying that followed the release and subsequent call just smells of a relief rally to me. At the time, there was also a lot of focus on the fact that Oracle’s hardware division declined by only 3%, not too bad, considering the 1-11% decline forecast by management, but still a decline in a core area.

Buying on “less bad than expected” numbers is understandable, but it just doesn’t seem to merit a 15% jump. I mean, it was still a decline. The same can be said of improved guidance. A company that is in the supposedly booming cloud business reporting forward guidance that finally includes a positive number is, once again, a relief, but not cause for celebration. I am more positive about the continued revamp of sales staff, but the effects of that won’t be felt in a while.

So, in a nutshell, here is the value of feelings. I started, having heard several pundits be positive about ORCL, with a vague impression that it could be worth a shot. It’s hard, following such a great year for stocks, to find things that seemingly have potential, so I am inclined to look closely at anything that has underperformed. The minute I looked at the chart, however, it screamed sell at me. It’s hard to say exactly why. ORCL has popped a long way in a short time and showed signs of topping out yesterday, but that was a down day for stocks in general. Volume was decent on the initial jump, but has been nothing to write home about in the follow up. There was also, for the technically minded, a doji-like shape to yesterday’s candle, which is often the sign of a turnaround in fortunes. It is a combination of these factors, but some of it is just down to trader’s instincts.

For whatever reason, I then shifted to looking at numbers in an unbiased way rather than combing them for positive news, and surprised myself by arriving at a negative conclusion. It could well be that 2014 will see Oracle turn around and resume growing, but it hasn’t happened yet. My gut tells me to wait and, if anything short the stock. While I like my gut less than in the past due to increasing size, listening to it served me well in the twenty years I was a paid market participant. I am not about to ignore it now.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , Technology

Referenced Stocks: ORCL

Martin Tillier


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