Company Description:
Polycom manufactures and markets a full range of high quality, media-rich communications tools and network solutions, which enable business users to immediately realize the benefits of video, voice and data over rapidly growing converged networks. Although the company is primarily a video conferencing and voice conferencing product provider, it has recently entered the DSL access market, particularly in the area of integrated voice appliances and broadband access devices.
Why we like it:
After tripling from its March lows near $7.50, shares of PLCM finally ran into a serious round of selling earlier this month. The selling volume really picked up on 12/18-12/19, driving the stock down for its first test of the 100-dma ($18.54) since early May. Volume on that drop ran more than triple the ADV, so it was impressive that the stock was able to turn on a dime and bounce from the $18.50 area. The initial bounce didn't go very far though and after drifting sideways for more than a week, dipped again on Tuesday and then rebounded again from right at the 100-dma. This looks like a solid double-bottom formation, coming just above key support at $18.50. There's no question that it is an aggressive play, but with market sentiment so unabashedly bullish, we're looking for the rising tide to lift this boat back to test its recent highs near $22.
In order to avoid getting caught in a sideways drift like we saw following the last rebound from the 100-dma, we're going to set a trigger at $20, just over the 50-dma ($19.90). The ideal approach will be to enter on the initial breakout, although more cautious traders can wait for a pullback and rebound from the 50-dma as their signal to enter the play. Initial resistance will then come in around $20.80, prior to the expected push up to test the $22 resistance level. While a push through that level is certainly possible, we won't be getting greedy on this play. Looking at the weekly chart shows just how strong resistance is in the $22-23 area, so we'll suggest exiting on strength when PLCM reclaims that level. Initial stops should be set at $18.40, just below today's intraday low, as well as the 100-dma.
Annotated Chart for PLCM:
