Stock Market Sets Up for Further Declines; Garmin (GRMN) Still Shortable?

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Yesterday’s selloff moved the Dow below a fairly major level of support at 12,200. In all likelihood, this violation will lead to more selling in the days ahead. The technical picture sets up almost too perfectly. According to what we see, the next stop is in the vicinity of the March 14th & 17th closing prices of 11,951-11,972.

From there, if our analysis holds to form, the next leg would follow along the angle of decent to converge at the end of the "T" formation; meaning a visit to the March 10 closing low of 11,740 sometime near the end of June-early July.

As you can see on the chart, this all looks too straightforward:

A stock that appears to be shortable during this downturn is Garmin, Ltd. (GRMN) which manufactures global positioning system (GPS)-enabled products and other related navigation, communications, and information products worldwide. It operates in four areas: Automotive/Mobile, Outdoor/Fitness, Marine, and Aviation.

The stock was one of Wall Street’s darlings for several years until it made a major top in late-2007. Since then GRMN has been a disaster and is off about 60% from its highs. Unfortunately for shareholders, the tough times could continue for quite some time.

There is brutal competition in the industry from the likes of TomTom and Navteq just to name a couple. Recently, Apple showed off navigation features on its iPhone, which lopped a few dollars off of GRMN’s stock due to competition fears. These fears might intensify as there is a lot of consolidation going on in the industry.

In late-April, the company said that earnings per share came in at 67 cents, below the consensus estimate of 75 cents. Revenues were also light by about $40 million. It is still up in the air as to whether or not this will be a trend, but most companies that miss like this tend to take longer than a quarter to turn it around.

Over the past two months, this year’s earnings estimates have fallen 48 cents to $3.94 per share. Analysts are only expecting single-digit growth for next year as well. The stock is not particularly expensive, but the momentum in both earnings and stock price point to lower prices in the near future. We see the stock testing its 52-low of $39.75 in the next few months.

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