As Americans, we tend to love the underdog, the come-from-behind story. Perhaps that’s the subconscious reason I tried to give Nokia (NYSE:NOK) the benefit of the doubt. While the broader situation didn’t look too hot for NOK stock, especially with rivals like Ericsson (NASDAQ:ERIC) faring so much better, the Finnish telecom-equipment provider has demonstrated occasional signs of life.
But with shares looking decidedly bearish since late August of this year, I’m afraid NOK stock is running out of time.
This isn’t meant to be a hit job. Rather, I’m speaking to the reality of the market. No matter how much management tries to conjure up a recovery narrative, the longer shares disappoint, the more likely it is that investors will punch out.
Forget fundamental or technical factors for a moment; this is just simple human psychology.
But critically, even if Nokia has a few tricks up its sleeves, the competition is also boxing the organization into an awkward position. That’s the claim that my InvestorPlace colleague Dana Blakenhorn made. Specifically, Blakenhorn argues convincingly that 5G isn’t just about carriers. Indeed, data centers that underline cloud-based innovations could be the real benefactors.
Lack of Credibility Is Hurting NOK Stock
Now, this allows opportunities for Nokia, but also opens new challenges. Blankenhorn stated that “it means Nokia can now compete against companies like Cisco Systems (NASDAQ:CSCO), Arista Networks (NYSE:ANET) and Juniper Systems (NYSE:JNPR) in the fiber world. But it also means the fiber world can compete with Nokia in the wireless world.”
As I’m sure my colleague would agree, Nokia doesn’t need to make its life more complicated. But that complexity is coming, whether management is ready or not. Unfortunately, the incoming threats are also damaging the technical picture for NOK stock.
First, since March of 2010, Nokia shares have been trading inside a negatively tilted trend channel. Worse yet, NOK stock hasn’t convincingly challenged this channel’s upper resistance level.
Second, Nokia has failed to maintain crucial horizontal support lines. From $7 to $6 to $5, prior support became resistance. With the stock trading barely above $4 at time of writing, it’s becoming increasingly doubtful that NOK can bounce back.
Nearer-Term Picture Is Also Cloudy for Nokia
Fundamentally, one of the most distracting headwinds against NOK stock is that the main competitor to the underlying company, Huawei, essentially got sidelined due to geopolitics. Of course, this is a complex scenario. However, Nokia should have been able to get something out of its rival’s misfortune.
When you look at Ericsson, you can’t help but feel the company did take advantage. On a year-to-date basis, ERIC is up more than 40%. NOK stock? It’s looking at less than 9%. Moreover, if Nokia isn’t careful, the equity unit can end up in negative territory.
Personally, I believe NOK’s price chart says it all. I’m going to ignore the first half of this year due to the novel coronavirus’s effect. But even setting that aside, the price action has been all over the map. To me, this reflects severe uncertainty among investors about where shares are ultimately heading.
As I mentioned earlier, NOK stock has been struggling inside a bearish trend channel since late August. At the beginning of this channel, shares were trading hands at around $5. It closed down to $3.27 before bouncing to the time of writing price of $4.06.
Judging from the technical trajectory, I believe Nokia stock stands at a make-or-break moment. I can’t emphasize this enough: shares need to punch through the upper resistance line. Otherwise, we could see more volatility, taking shares well below $3.
Time to Face Reality
When I last discussed NOK stock at length in late October, I mentioned that new CEO Pekka Lundmark didn’t help matters in his first earnings report with Nokia. True, the company really stunk up the field with its third-quarter disclosure, with one of the lowlights being the withdrawal of long-term guidance. However, Lundmark blaming Covid-19 for the shortfall wasn’t a good move.
Generally, people don’t like excuses. Further, by talking about the coronavirus when rivals comparatively gave it a passing reference, it emphasized that the leadership team didn’t have a great recovery strategy in mind. What was apparently an attempt at buying time may have actually drawn increased scrutiny.
But here’s the thing — even if I’m wrong about my psychological assessment, it really doesn’t matter. Clearly, the investment community is spooked about NOK stock. Given the ugly technicals, I don’t see any reason to play the contrarian hero.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.