Still Seeking Sun

My attempt to build a position in Sun Microsystems last month didn’t go as planned. I bought at $3.60, then it dropped. The extent of the drop was enough to indicate that what I thought to have been a support area was too generous. Therefore, I sold at a small profit when the stock rebounded to $3.70. I’m now looking to get in at prices below $3.50 and I think the next four weeks could bring them.

For help in navigating this volatile stock, I looked back at how it performed in this period a year ago. In August 2003, Sun fluctuated mainly between $3.50 and $3.90 with a high of $4 and a low of $3.39. Then in the second week of September it saw a breakout to a high of $4.25. It appeared that the lows of August had been a lost opportunity and that the traditional fall revival was already upon us. I remember watching the stock at that time for an entry point and being disappointed that it just kept rising. However, patience paid. In the first week of October, it crashed to a low of $3.14. I suggested that you buy on October 8th. By the end of October, it was back above $4 and well on its way to my average sale price of $5.64 in February 2004. From there it was all down hill.

Here are the monthly highs and lows:

Aug-03     4.00     3.39

Sep-03     4.25     3.24

Oct-03     4.00     3.14

Nov-03     4.48     3.99

Dec-03     4.59     4.11

Jan-04     5.75     4.47

Feb-04     5.93     5.09

Mar-04     5.41     5.33

I think we’re in for a similar pattern this year. The stock closed last week at $3.91, still comfortably below the goal I stated in February of buying below $4. Intel warned last week and technology became weak. Other technology companies may follow. The pre-election jitters should add enough uncertainty into the mix to give us another leg down before the Autumn climb higher.

Note that I would not be at all surprised to see stocks rise a bit more before they start heading lower. That happened last year, as well. Keep your hand steady but keep it ready. As you can see from both the lows last month and the lows in October last year, cheap prices don’t last long. I’ll be watching as well and will let you know in this space if and when I buy again.

By the way, you’ll be in good company as a buyer of this stock below $4. In August, James Barksdale, a Sun director and the former president of Netscape, bought 860,000 shares at prices between $3.35 and $3.79. Here’s the insider history.

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