This Technology Penny Stock Is At A Critical Juncture

While I discourage guessing games, I do encourage trading challenge students to think analytically about penny stocks because we know that 99.99% of the traders who trades these piles of rubbish don’t.

So while I don’t agree with the article below at least there’s some solid thought being put into so it’s a credible guest blog post about Spring (S) whose chart actually looks like it might break out sooner than later and if that doesn’t happen it’s a good top…long story short, the stock is at a key turning point on way or the other:

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Sprint Could Have Major Volatility Soon

Volatility is the lifeblood of the short-term trader. Extreme volatility can pay huge returns to the discerning trader. Hopefully there are signals beforehand that only a handful see before the rest. Early entry is the determining factor in success of those who seek to capture volatility. So when a stock potentially has its future hanging in the balance it is worth keeping an eye on.

Sources of Volatility

Softbank and Clearwire (CLWR) are key issues for Sprint (S). Sprint needs the Softbank deal for the capital, and it needs the Clearwire deal for the spectrum to bolster its network. The company may be able to get by without Clearwire, but Softbank’s money is needed. There does not seem to be any hope of getting Clearwire with its high debt without the Softbank deal clearing.

Dish Network (DISH) asked the FCC to block the Softbank deal until the Clearwire situation was more clear. The FCC rejected that, but that does not mean the deal will go through. The DOJ wants to review the deal for potential national security concerns. Clearly, allowing Sprint to fail and a duopoly to develop in the U.S. is not as much of a concern as a Japanese company infusing an American company with cash. The DOJ has yet to reach a decision. So the Softbank deal is up in the air because of this.

Dish Network is trying to get Clearwire for itself. The most recent information shows that Dish has the leading bid, and most are expecting Sprint to respond by upping its bid. That is not for certain, and Sprint need both these deals to clear. It is in a unique and unenviable position right now, because Sprint needs to have two deals go off, and the Clearwire deal’s execution will depend on the Softbank deal. It would be awful for Sprint to have to back out of the deal or taken on more crushing debt to complete it. Accomplishing two big deals like that is difficult, and Sprint’s future depends on both. Two victories is asking a bit much.

Analyzing the Situation

Any near-term progress on any of these issues should help the share price. The FCC rejected Dish’s proposal and the Softbank deal is awaiting DOJ approval now. Sprint is a shade below $6 now, and this could be due to the Dish news. Even though substantively nothing was really accomplished since the deal is not going through yet. That is the nature of things. Good news is good news and the market reacts well. DOJ approval or disapproval will have a serious impact on the stock. You can choose a side and try to benefit. Or you can find some combination of trades with stocks and options that allows you to capture both sides. I have not seen much contemplation regarding the DOJ disapproving the deal, but people are still apprehensive.
Clearwire presents a stickier issue. It will most likely be considered a positive development for the company, but if Sprint has to up its bid and pay a lot the market could react negatively. Acquiring another company is normally viewed with some apprehension by the market, since acquiring companies overpay traditionally. The initial argument about the benefits are usually unduly rosy, and the realities show that synergies and growth opportunities are either less than expected or will not materialize until far into the future.

There is no clear choice. Despite the mild to general belief that the Softbank deal will be approved there is apprehension, because there is no way to be certain. There is also a lot of work to be done monitoring the news for new developments. You can also take a look at the charts and options activity to see where the market is leaning regarding the deal. Eventually, you’ll have to decide what the future will be if you want to trade Sprint. Volatility is not without its risks.

Concluding Thoughts

Sprint has been doing very well lately and the stock has done very well. Bad news could send the stock reeling. People are optimistic about Sprint though. In the event of good news it would bolster the company’s position. There are a lot of hit pieces out in both article and comment form. They focus on Sprint’s weakness, but none of this is unexpected. The company projected the weaknesses people are pointing out. Cherry picking the facts you want to fit your argument is not a good strategy. The company has specific goals it wants to accomplish as part of its turnaround, and is on track with these. The negative aspects were fully expected and accepted by the company. Focus on the facts. These two issues are key to the company’s future and there are real developments coming that are not planned for.

Softbank and Clearwire will allow Sprint to assail the supremacy of AT&T (T) and Verizon (VZ), but without it the company’s future plans could be in jeopardy. People are waiting for Sprint to lay out a plan in case things do not go the way Sprint wants. Either way, there is money to be made. Knowing what side the profit lies will be hard. The market is leaning positive, but even if they are right there will be good upside.

Posted in Chart Of The Day

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  • Stella

    confusing ! so do you recommended it as a Buy?