3SOF

Mike,

If KOMG looks undervalued today, think how undervalued it was at 9.42 in August, 2004, before it rallied 330% into August, 2005 

QuoteJubak's Journal

By Jim Jubak

I'm going to ignore my own stop loss at $33.60 on shares of Komag (KOMG, news, msgs) and hold on because I can't find any fundamental reason for the decline.

This is suppostion on my part, but given that spectacular gain in just one year, I think that the market is digesting those gains, or "selling the good news."  In other words, the market response is, "Yeah, that's great news on earnings and the future outlook, but we've already factored alot of that in when we rallied the stock 330% over the last year."

I like Jubak, and I don't mean this as a personal criticism, but KOMG has been breaking alot of support near his $33.60 stop, and this where TA can be a big help.   If the chart is breaking down, "Don't get married to a stock."

KOMG closed yesterday at 29.25, below three levels of support.

Melf Elf,

You are absolutely right. That reminds me how much Stock investing is about perception. KOMG and STX are both as undervalued now as they were in August 2004. What have changed is not the fundamentals but only the mood of the market.

Here is the good news mood swings with the wind but fundamentals are more sustainable. Try to look at the Komag chart below. I am sure I could show that the trend is still positive (which I believe it is) with a little artistic freedom. but the market in this point in time has decided that Hard disks are going to be history. From my point of view this is quite surprising as all the laptops and MP3 players I have bought still have this funny sound of a HDD and both stocks are growing at quite phenomenal rates.

Anyhow this is all about perception and I have experienced a sharp drop in the number of applauds since I changed my picture from Lulu to Sahsa.

Sasha is my oldest dog - a genius in the dog world! She is probably more intelligent than most of the investors in the stock market today. Intelligence doesn't count though - It is all about perception so I am changing back to Lulu. Lulu is a labradore (Sasha is an African Liondog) Lulu is extremely Charming but I woldn't ask her for stock picking advice (Sasha is my prefered choice for this after my wife (that is why i hold more France stocks than US stocks!!)

Anyhow after several requests (one) please welcome Lulu back - she really is cute!

Quote from: Michael on October 03, 2005, 06:38:59 PM
Melf Elf,

You are absolutely right. That reminds me how much Stock investing is about perception. KOMG and STX are both as undervalued now as they were in August 2004. What have changed is not the fundamentals but only the mood of the market.

Hi, Mike,

Good point about perception and the mood of the market.

QuoteI am sure I could show that the trend is still positive (which I believe it is) with a little artistic freedom. but the market in this point in time has decided that Hard disks are going to be history.

I agree with you that the long-term trend is still positive.  Further, if KOMG does go down near the H&S Top target, the trend still would be positive if it finds support in the 22-24 area.

Shorter term, though, KOMG has some technical difficulties to overcome.  Since my last post on Septermber 23, it looks as though KOMG has undergone an A-B-C corrective rally of the 28% decline from 40.50 to 29.17.

What is an A-B-C Corrective Rally? (start at the black arrow on the chart):

It "corrects" the stock higher after it has had a move down, in this case, a 28% decline in KOMG.

Leg A is a rally.  That's the 2-day rally from September 23 to September 26, marked "A" on the chart.

Leg B is a selloff.  That's the 2-day selloff into September 28, marked "B" on the chart.

Leg C is another rally.  That's the 3-day rally to October 3, marked "C" on the chart, that got the stock back above the neckline for one day, putting it "in the neutral zone" for one day.

Even though KOMG has enjoyed a 12.5% rally off the September 23 low, the overall formation of the A-B-C corrective rally is bearish.  It's a Bear Flag, charactized by "higher highs and higher lows."

As of yesterday's close, KOMG is back below the neckline of the H&S top.  If it can close back above the neckline, I'd rate it as neutral.  If it breaks below the bottom of the Bear Flag, it likely will at least go back to the September 23 low, or close to it.

Quote
Anyhow after several requests (one) please welcome Lulu back - she really is cute!

Welcome, Lulu!   

Quote from: Melf Elf on October 05, 2005, 05:18:16 AM
If it breaks below the bottom of the Bear Flag, it likely will at least go back to the September 23 low, or close to it.

KOMG broke below the bottom of the Bear Flag on Wednesday. Yesterday, it returned to within two cents (29.19) of the September 23 low (29.17).

Yesterday's bounce off 29.19 could produce more upside today off the double bottom (29.17 and 29.19),  but this chart action lately isn't bullish.  Holding yesterday's low would be a start.

I like this stock due to Mike's nice work on the fundamentals, but I haven't liked the chart action.

Joining you at 29.64...looks good.

Quote from: robt on October 07, 2005, 11:30:49 AM
Joining you at 29.64...looks good.

robt,

I wanted to short KOMG on a rally and re-test of the bottom of the broken Bear Flag, but I didn't get the chance of a fill.  KOMG had a weak rally on Monday, then yesterday, broke below 29.17-29-19 support, closing at 28.96, which I view as Bearish Move #4 in this stock.

Bearish Move #1: Broke the H&S top.

Bearish Move #2: A-B-C Corrective Rally (Bear Flag rally) that ended at the broken neckline of the H&S top.

Bearish Move #3: Broke below the Bear Flag.

Bearish Move #4: Broke below the base of the Bear Flag (29.17) and broke the Double Bottom at the base of the Bear Flag (29.17-29.19).

SAN JOSE, Calif., Oct 12, 2005 /PRNewswire-FirstCall via COMTEX/ -- Komag, Incorporated (KOMG), a leading independent supplier of thin-film media for disk drives, is increasing its business outlook for the third quarter of 2005 ended October 2, 2005.

As a result of continuing strong industry and customer demand during the third quarter of 2005, the Company expects total revenue to approximate $180 million and finished disk shipments to approximate 27.5 million. Total revenue in the prior quarter was $172.4 million.

http://biz.yahoo.com/prnews/051012/sfw099.html?.v=20

Gaining in AH, but who knows what this market will do tomorrow?

Quote from: robt on October 12, 2005, 04:13:41 PM
Gaining in AH, but who knows what this market will do tomorrow?

Glad to hear it, given how ugly the market has been. 

KOMG came within $0.34 of the Bear Flag Target #2 yesterday.  It was at 29.21 in AH, which puts it right back at the 29.17 - 29.19 broken support, which now is an area of resistance.  Even an opening there, though, could spawn a badly needed relief rally in the general market.

Anything more than that would be a BIG relief.   

I am in this morning as well. This should fill the gap at $38 given the strong fudamentals & great analysts reports.

Quote from: Melf Elf on October 12, 2005, 04:19:57 AM
Bearish Move #1: Broke the H&S top.

Bearish Move #2: A-B-C Corrective Rally (Bear Flag rally) that ended at the broken neckline of the H&S top.

Bearish Move #3: Broke below the Bear Flag.

Bearish Move #4: Broke below the base of the Bear Flag (29.17) and broke the Double Bottom at the base of the Bear Flag (29.17-29.19).

Bearish Move #5: Gapped up to 29.17-29.19 resistance area on good earnings, and rallied.  Closed yesterday at 28.86, below the "good earnings" gap. 

Bearish Move #6: Rallied to the down trendline off the high on October 17.  October 18, KOMG opened below the down trendline, rallied above it by by six cents, then closed down on a Bearish Engulfing Pattern.  Yesterday's third tag of the down trendline validates it as resistance.

As we've discussed over the last couple of months, often you will see a chart like KOMG inexplicably breaking down on what appear to be very good fundamentals, then later on you get some news to explain it.

"First the chart...then the news."

Earnings were good last week, but KOMG closed yesterday below "the good earnings gap,"  suggesting that the earnings news wasn't perceived as "good enough" for that gap level to be maintained.

The market is much more about "perception of the news," than it is about the news itself.

The chart has been bearish, and now weeks later, KOMG not only couldn't hold "the good earnings gap" yesterday, this morning, KOMG receives a downgrade from outperform all the way to underperform. 

The downgrade should get KOMG to Bear Flag Target #2: 27.16. 

Updated: 06:54 AM EDT
RESEARCH ALERT-Bear Stearns cuts Komag to "underperform"

Oct 19 (Reuters) -

KOMAG INC.

Current Prior

Rating Underperform Outperform

--Bear Stearns cited concerns about weakening industry conditions, capacity additions, and easing media supply constraints for the downgrade.

(Reporting by Preeti Mishra in Bangalore)
10/19/05 06:52 ET

That was not earnings, it was revised guidance -- revised upwards; how can "up" be not good enough?

Earnings will come Nov. 2.

(had some more verbiage here earlier but that was about a different beleaguered stock)

Quote from: robt on October 19, 2005, 02:29:28 PM
That was not earnings, it was revised guidance -- revised upwards;

Sorry, I should I have been more clear that it was news related to earnings/guidance, etc.

Quotehow can "up" be not good enough?

Go figger, huh?   

Your question is at the heart of our discussions we've had for the past two months in this folder and in the STX and CKCM folders about the "counter-intuitive" factor that sometimes exists in the market.  Things that "don't make sense" on the face of it.

The fundamentals on these stocks have seemed great, but the charts looked lousy, and they  have continued down. 

KOMG gave revised guidance that was "up," as you say, on the heels of Four Bear Moves in the chart.  At least two downside targets still were IN PLAY.

That doesn't mean that the targets had to be made, but the stock still was in bearish mode.  What happened after the upward guidance was given?  All that did for the stock was to send it up for a third tag of the down trendline, then we got today's tank on a severe downgrade from outperform to underperform, skipping the step to a neutral rating altogether.

Why the big downgrade when KOMG has upped guidance, I don't know, but the chart has been bearish and it made another downside target (and more) at the open.

While today's slam to the downside doesn't make sense from the standpoint of what we know about the fundamentals, it definitely makes sense from a technical point of view: there were at least six identifiable Bear Moves in KOMG as of yesterday's close  prior to the gap down.

There's no arguing with the chart, of course, but I think what's going on has little to do with earnings. I think the perception is that the time for "no moving parts" has come to data storage, and this idea may overrule any kind of earnings figures, even though we all know it will be a long time before flash is ready to take dominance in the market.

I thought it might be an idea to buy Sandisk as a hedge, but discovered that it was also the subject of another downgrade today...maybe when it finds a bottom. Also earnings are coming up tomorrow -- after my experience with AMD, a possible "sell on the news" reaction puts me off.

Anybody here who likes Jazz? Well since 4.27PM ET I have been singing "what a wonderful world" and even though I am not as good as Armstrong but I sing it with the same conviction.

KOMG beats analysts' expectations. In fact earnings increased 300% compared to same quarter last year and the share is down 5.5% for the day and the PE is around 10. What a wonderful world and what a wonderful opportunity to build wealth.

Let me quote from the earnings release:

QuoteKomg earned $32.0 million, or 97 cents a share, in the quarter, compared with $9.3 million, or 31 cents a share, a year ago. Sales jumped 76% from last year to $180 million. Analysts surveyed by Thomson First Call were forecasting earnings of 94 cents a share on sales of $179.5 million.

T.H. Tan, Komag's Chief Executive Officer stated, "Overall demand for our products continued to be strong during the third quarter of 2005. A favorable product mix shift to higher sales of advanced 3.5-inch disks at 100GB and greater, combined with an increase in sales of aluminum substrates led to a record level revenue of $180.0 million and a 17.8% net margin.

"Overall demand continues to be very strong entering the traditionally seasonally strong fourth quarter. As in the third quarter of 2005, our factories continue to run at full existing manufacturing capacity of approximately 27 million disks per quarter. Our capacity expansions are currently progressing on schedule. We expect to have a limited amount of incremental capacity from our first expansion in the later part of the fourth quarter of 2005. With some incremental capacity, as well as continuing favorable product mix shift to higher capacity 3.5-inch disks, we expect total revenue in the fourth quarter of 2005 to increase 2% to 4% from the third quarter of 2005. Net margin in the fourth quarter is currently expected to be similar to the third quarter at approximately 17% to 18%.
We expect to complete the capacity expansion discussed above during the first quarter of 2006 and exit the first quarter of 2006 with total capacity of approximately 31 million disks per quarter. Additionally, we have started a further capacity expansion at our existing manufacturing sites in Malaysia, in an attempt to keep up with the growing demand for media. This additional capacity is planned to be available beginning in the second half of 2006 with total capacity of approximately 40 million disks per quarter by the end of 2006.

Hmmm - I am in a buying mood........