Last night Western Digital ( WDC , quote ) said it would beat its prior forecast for revenue this quarter due to the progress in the repair of Western Digital's Thailand facilities that were crippled by the flood damage. This morning, shares are up 3.75% at $32.95.
WDC now believes it can make $1.8 billion in revenue for fiscal Q2 ending later this month, considerably higher than the range of $1.05 billion to $1.25 billion previously targeted in the Q1 report. The company is also expecting gross margin to be above its original expected range of 18% to 23%.
The announcement seemed to catch the eye of Think Equity analysts, who promptly changed their rating on WDC from hold to buy and their target price from $25 to $40.
WDC said it has restarted production in one building ahead of schedule after six feet of water were pumped out of the facility, but it will take more time to get the other building online.
Even though this is great news for Thailand and WDC, overall industry disk drive shipments will be greatly affected.
WDC is forecasting total industry shipments around 120 million this quarter, some 50 to 60 million short of global demand. The company is suggesting supply constraints to continue through March as WDC and competitors bring production back online.
Looking at the technical side, we see small gap up on November 27 with a $2.93 point gap in today's trading.
When looking to starting a position with price gaps, the rule of thumb is to wait for price to back fill the gap.
In this case, we have two gaps with the second gap breaking through the 150-day moving average and the RSI is in overbought territory from the sharp move up. Since the price has moved above the 150 MA, price may find support at the 150 MA and bounce off it.
Consider looking at putting half of the position slightly above the 150 MA and if price attempts to fill the gap, traders can add the additional position on.