There's a short list of stocks that can snatch defeat from the jaws of victory. You can add Nokia (NOK) to that list this morning. Although the recent run-ups may have been fueled by rumors of a potential purchase of Alcatel-Lucent (ALU), the reality of the deal has taken a potentially bullish chart and thrown it on the trash heap in the short-term. Alas, there is still hope for the longer term picture, but it doesn't get any prettier until we see the stock rally significantly from here first and hold the rally for several weeks. Spoiler alert: that's a terrible risk-reward setup in a market still teeming with bulls.
A quick glance at the daily chart shows us the excitement pre-deal with Nokia moving to $8.35 from $7.75 in just two days. Now, with a deal announced, we are right back to $7.80. The original move looked to be significant as the stock broke through long term daily price resistance, but now it faces trouble. Support should have come in around $8, but we haven't seen that. Secondary support now sits at $7.80, so buyers here do have the advantage of a tight stop, but a loss of $7.80 could send us back to $7.55. Unfortunately, the upside right now is only around $0.20 with a similar downside. Add in the face, the bearish crossovers in both the Relative Strength Index (RSI) and slow stochastics, there should be hesitations from buyers at the moment.
The spike of late last week also sent the Force Index to levels not seen since last October. From those levels, the stock proceeded to drop 10% without even seeing a 1% gain. Back then, we didn't see the extreme spike in the Commodity Channel Index (CCI) like we just witnessed. These spikes bring with them extreme volatility and big moves. For Nokia, that big move was lower. While the move lower has been big, we aren't nearly oversold yet and all we've done is created a huge wave of remorseful buyers between $7.90 and $8.35 who will be happy to sell breakeven at this point.
The real damage could be the loss in the weekly chart, well, the loss of the potential. Nokia has been trading in a wide channel for two years with it becoming even narrower over the last year. A push over $8.50 would likely trigger a huge squeeze. The Bollinger bands have been so tight for so long now, there's an explosive potential. However, we now see the 8 period RSI dipping back under 50, into bearish territory, right when it looked ready to push. At this point, there is no hurry to buy this stock until there is a weekly close over $8.50. I'd probably wait for consecutive closes over $8.50, but there is nothing right here, right now to spurn buying. The Moving Average Convergence Divergence (MACD) is dead flat as is the Vortex Indicator which further confirms the current price channel. A buy around $7.50 looks worth the risk as it ties in well with the daily chart, but traders can only give it about $0.25 if buying in that area.
Overall, the next few days are going to be telling and Nokia may be a buy, but I would say it is a buy at $7.50 for those wanting the most attractive risk-reward based on the newly minted kick-in-the-teeth merger reactions. There are better options in the communications equipment space that we'll look at next.