KOMG

[Melf Elf]

Yesterday, KOMG closed just a hair above the top of the Bullish Falling Wedge.  It wasn't a convincing breakout by any means, but it's a technical breakout nonetheless, and at least a caution for the shorts, to be on alert.   

Short squeeze at the open, after yesterday's technical breakout.

Since the July 27 earnings smash below 2006 support, at 39.16, KOMG has been trading in a Bullish Falling Wedge (pattern in green).

The short squeeze took KOMG to an early morning high of 39.30.

[la-onda]

reason for squeeze:

Komag upgraded to "outperform"

Friday, September 01, 2006 5:57:35 AM ET
Robert W. Baird

NEW YORK, September 1 (newratings.com) - Analysts at Robert W Baird upgrade Komag Incorporated (KOMG.NAS) from "neutral" to "outperform." The target price is set to $50.

In a research note published this morning, the analysts mention that the upgrade in the rating is on account of a more optimistic 2H06 outlook. Komag has healthy prospects for gross margin improvement and revenues in 2007, with improved fixed cost absorption from new capital equipment, rising volumes and newer products, the analysts say. Robert W Baird believes that sustained high utilization and scheduled capacity expansion is likely to result in robust earnings going forward.

http://www.newratings.com/analyst_news/article_1358803.html

time for reentering???

[la-onda]

reason for squeeze:

Komag upgraded to "outperform"

Friday, September 01, 2006 5:57:35 AM ET
Robert W. Baird

NEW YORK, September 1 (newratings.com) - Analysts at Robert W Baird upgrade Komag Incorporated (KOMG.NAS) from "neutral" to "outperform." The target price is set to $50.

In a research note published this morning, the analysts mention that the upgrade in the rating is on account of a more optimistic 2H06 outlook. Komag has healthy prospects for gross margin improvement and revenues in 2007, with improved fixed cost absorption from new capital equipment, rising volumes and newer products, the analysts say. Robert W Baird believes that sustained high utilization and scheduled capacity expansion is likely to result in robust earnings going forward.

http://www.newratings.com/analyst_news/article_1358803.html

time for reentering???

[Melf Elf]

Oliver,

Thanks for that information.    Interesting timing on that call, given yesterday's Bullish Falling Wedge breakout.  A "perfect storm," of sorts, with both the shorts and the breakout buyers clamoring to buy at the open.

I suspect that Baird, or someone in his office, was watching the Bullish Falling Wedge. 

The shorts could come under pressure again this afternoon if 38.22-38.23 gets taken out to the upside.

[Melf Elf]

Short squeeze at the open, after yesterday's technical breakout.

Since the July 27 earnings smash below 2006 support, at 39.16, KOMG has been trading in a Bullish Falling Wedge (pattern in green).

The short squeeze took KOMG to an early morning high of 39.30.

Bear Stearns downgraded KOMG, and it's currently is down 15% on the heaviest volume of the year.

In my view, today's tank in the stock has nothing whatsoever to do with the fundamentals.  According to Scottrade, KOMG will earn $4.83 this year, and $4.93 next year, so the P/E ratio for both at today's price (currently 30.67) is less than 6.5.  Ridiculously low.

As I said to Joe in the APPL folder last night, let's put aside that we're talking about AAPL (KOMG, in this case), and look only at the chart.  What is it telling us?

Friday's Bullish Falling Wedge gap up breakout got to 39.16  RESISTANCE in the first 5-10 minutes of trading.  The high was 39.30, then the stock sold off.

The shorts could come under pressure again this afternoon if 38.22-38.23 gets taken out to the upside.

That didn't happen.  KOMG sold off, then gapped down yesterday, leaving a Bearish Abandoned Baby on the chart at 39.16 resistance.  UGH.

As we've discussed on so many threads, look at the overall chart.  We can see on this one that everyone who bought KOMG since January 11, 2006 had a loss in the stock when 39.16 broke to the downside.  That's 8-months worth of "overhead supply," of people who have a loss, and want OUT, thus the immediate selling on September 1, on the rally to 39.30.

More selling on the Abandoned Baby gap down yesterday.

Panic selling today, which again, I don't think has to do with the fundamentals, but rather, has everything to do with a technically-based selloff.

I don't like to advise anyone, but I will say that if you still own KOMG, this isn't some "fly by night" company that is going out of business.  There might be some more blood-letting as we go into the end of the year on tax loss selling, since everyone who bought KOMG in 2006 now has a loss and might realize it (sell) to offset gains in other stocks.  You might consider holding it, although again, I don't like to advise.

My point in this post isn't whether to hold KOMG, or not.  It's to point out that when stocks make big tops like this one did, use a stop.  Don't fight the trend, and don't let a loss become a disaster like this.

I sympathize with any of you who are long.  Days like this are miserable, but many of them can be avoided if we use a reasonble stop, and play something else that doesn't have 8-months worth of overhead resistance. 

Good luck!





 

[Terliso]

Null,

Top Head & shoulders in the making,  looks like KOMG needs to go down more to connect the neckline.. IMHO

KOMG is already down 17% this week

[la-onda]

stopped out with 10% loss   

Komag Drops On Weak Demand Outlook
Mary Crane, 09.06.06, 3:56 PM ET

Shares Komag were down more than 13% Wednesday after the disk-drive technology company lowered its third-quarter guidance on slower-than-expected demand and easing supply constraints.

In an 8-K filing with the U.S. Securities and Exchange Commission, Komag said it expects sequential revenue growth of 3% and net margins to be around 14% to 16%.

Komag had previously said it expects 5% growth and margins in the range of 16% to 17%.

"Current quarter-to-date demand has been slower than the normal seasonal pattern," Komag management said. "As a result, total shipments and financial results for the third quarter will be dependent upon the remainder of the quarter."

The announcement warranted a rating change from Bear Stearns to "peer perform" from "outperform." Analyst Andrew J. Neff said Komag's filing signaled a "worrisome change in tone" at the company and could be interpreted as a negative sign for hard-disk drive vendors like Seagate Technology or Western Digital, which are sensitive to capacity trends.

Caris & Co. analyst Shebly Seyrafi said increased competitive pressures, increasing capital expenditures, and declining capacity utilization will further erode Komag's margins.

The analyst lowered the price target on Komag to $35 from $40 and advised investors to avoid buying the stock.

[Melf Elf]

stopped out with 10% loss   

Oliver,

Sorry for your loss, my friend.  That's no fun, I know.

Komag Drops On Weak Demand Outlook
Mary Crane, 09.06.06, 3:56 PM ET

Shares Komag were down more than 13% Wednesday after the disk-drive technology company lowered its third-quarter guidance on slower-than-expected demand and easing supply constraints.

The analyst lowered the price target on Komag to $35 from $40 and advised investors to avoid buying the stock.

Thank you, and applause, for your posts on these upgrades and downgrades, and news items.  You've helped me out a number of times.

What helps me the most is not the actual target that the analyst gives, because those targets can be so disparate, like in April, but when they make the call .

Let's look at April, for example:

1. April 6, Needham called for a target of $65 based on 14 times 2006 estimate of 4.63 (which now is upped to 4.84, per Thompson Financial).

Good call, or not?  I'd have to say $65 looked entirely reasonable.

Timing of the call?  UGH...

KOMG had completed a Bearish Rising Wedge that had "morphed" into an upward sloping H&S Top (dotted red line, back in April).

KOMG had broken the neckline of the H&S top, and at that April 6 Needham call for $65, it failed just below the high of the Right Shoulder.  UGH.

2. April 24, Monday morning, AM TECH said sell, with a target of $29.

Good call, or not?  Based on the fundamentals, I'd say that they looked like idiots.   

Based on the chart that just had broken the neckline of a larger H&S Top at the close on Friday, April 21 that put a target of 34.02 IN PLAY, I'd have to say that the timing of the downgrade was brilliant, although the $29 target looked about $5 too low.  We now know that it wasn't too low.  We got to $30.18 yesterday.

3. April 27 - Kaufman Bros. downgraded KOMG.  I don't know what their target was.

Good call, or not?  Again, based on the fundamentals, the call doesn't look good.

Based on the chart?  The day before, April 26, KOMG re-tested and closed slightly above the neckline of the H&S Top.  Brilliant timing, to downgrade it right there at resistance.

4. September 1 - Barid upgraded KOMG.  I don't know their target.

Good call, or not?  Based on the fundamentals, it looks like a good call.

Based on the chart, brilliant timing.  KOMG had closed just a hair above the Bullish Falling Wedge on August 31.  The problem, as we know, was that the call resulted in an upside morning panic that failed at the bottom of 8 months worth of resistance, at 39.16 

Oliver,

Thanks for that information.    Interesting timing on that call, given yesterday's Bullish Falling Wedge breakout.   A "perfect storm," of sorts, with both the shorts and the breakout buyers clamoring to buy at the open.

I suspect that Baird, or someone in his office, was watching the Bullish Falling Wedge. 

I see that happen so often that I have to conclude that, in this day and age of computers and charting, these analysts know exactly where the breakout/breakdown data points are, and I suspect them of front-running their upgrades and downgrades.

Not accusing...just suspecting... 

Very easy for the analysts to buy the breakout on Thursday afternoon, then the next morning, "Melf Elf Upgraded KOMG to $40." (Then sell into the rally, at $39 resistance).    

In terms of Needham's $65 call vs. AM Tech's $29 back in April, if we look at the chart and the patterns, I think we'd have to agree, especially given the timing of AM Tech's call, exactly at the break of the H&S Top, that in this case, AM Tech's technicals trumped Needham's fundamentals.  It doesn't always work that way, but I think that we can take advantage of some of these calls.

Thanks again for all of your news alerts, Oliver.

[la-onda]

thanks MelfElf, also applaud for your fantastic analysis (always appreciated)

update:
Citigroup Smith Barney is reiterating BUY on KOMG citing Q3 Hiccup Creates Trading Opportunity

September 7, 2006

SUMMARY

- Komag lowered its Q3 revenue and op margin guidance. The company now expects revenues to be up 0-3% Q/Q compared with up to 5% previously, with op margins of 14-16% down from 16-17%.

- Mgmt cited a weak July/Aug., leaving the quarter more back-end loaded than recent years. Compounding the demand issue was excess OEM inventory exiting June and a slower ramp on large-capacity drives (>120GB). We believe the latter of these will be substantially worked though via seasonal Q4 demand.

- From an HDD industry standpoint, the KOMG miss represents <1% of our CQ3 HDD TAM (ex-notebook). As such, premature to make a macro call on demand. However, moderation of Capex is a modest neg. for IVAC and XRTX.

- On the back of recent sell-off, valuation looks attractive and downside risk appears limited. Assuming a reduced multiple (8x v. 10x) and lowered NTM EPS ($4.78 v. $5.00) our new $40 price target offers a 28% ETR. Maintain Buy.

[la-onda]

update 

Sector Wrap: Komag Drags Disk Drive Makers
Friday September 8, 1:24 pm ET
By Betsy Schiffman, AP Business Writer
Hard Disk Drive Makers Dragged Down After Komag Cuts Sales Outlook

NEW YORK (AP) -- Komag Inc. delivered a little blow on Wednesday morning that didn't bode well for hard disk drive makers.

The San Jose, Calif.-based company, which makes computer disks used for disk drives, said it expected third-quarter sales to fall short of previous expectations due to weak demand. The company now expects between $233.6 million and $240.6 million in sales, down from a previous forecast for roughly $245.3 million in sales, prompting investors to dump the stock. On Wednesday shares of Komag opened at $33.10, down 9 percent from the previous close of $36.26, and the stock lost nearly 18 percent on the week, closing Thursday at $31.10.

Some analysts suspected Komag's misfortune was indicative of softening business for hard disk drive makers as well.

"Komag is a key media supplier to the disk drive space," said Caris & Co analyst Shebly Seyrafi. "Their key customers include Seagate, Western Digital and Hitachi. This is a negative point for drives or PCs. And although there's a possibility that PC sales will pick up later this year, so far we haven't seen a significant pick up."

Still, other analysts left room for the possibility that Komag's problems were company specific.

"The stock market is taking the view this morning that this announcement has negative implications for finished hard disk drive demand at Seagate Technology (a Cayman Islands headquartered maker of hard disk drives) and Western Digital Corp., which is possible, although there are other puts and takes to consider," wrote Merrill Lynch analyst Steven Fox, in a note to clients on Wednesday.

Baird analyst Daniel J. Renouard was less worried, and even a touch bullish on the disk drive makers.

"Given some forward buying of media occurred during the second quarter, the slow start to the September quarter likely led to a slight workdown in media with a magnified impact to Komag. We suspect end demand is healthier going forward than either Western Digital or Seagate Technology valuations imply and we recommend purchase of both stocks at current levels," Renouard wrote in a note to clients.

Investors had their own ideas, though. Shares of Seagate fell 11 percent during the week to end Thursday at $20.06 on the New York Stock Exchange. Meanwhile, shares of Western Digital took an even bigger hit. The stock lost 13 percent on the week, finishing at $16.43 on Thursday on the NYSE.

[Melf Elf]

"Given some forward buying of media occurred during the second quarter, the slow start to the September quarter likely led to a slight workdown in media with a magnified impact to Komag. We suspect end demand is healthier going forward than either Western Digital or Seagate Technology valuations imply and we we recommend purchase of both stocks at current levels," Renouard wrote in a note to clients.

Investors had their own ideas, though.  Shares of Seagate fell 11 percent during the week to end Thursday at $20.06 on the New York Stock Exchange. Meanwhile, shares of Western Digital took an even bigger hit. The stock lost 13 percent on the week, finishing at $16.43 on Thursday on the NYSE.

Oliver,

I think that shareholders are catching on: do the opposite   of what the analysts say!   

Just kidding, of course, but there's a bit of truth in that jest.  There have been some good analyst calls, like the Am Tech and Kaufman Bros. downgrades of KOMG in latr April, 2006 at the broken neckline of the H&S Top, but Needham's call back then for $65 in KOMG was way off.

Here are some other analyst calls that make me wonder: 

1. Piper Jaffray reiterated OUTPERFORM on STX on August 29, 2005 exactly at a re-test of a broken H&S Top!

STX tanked for the next two months.  Overall, it was a good call, but lousy timing.

2. On October 12, 2005, Needham (they're the ones who put $65 on KOMG) cut STX from $28 to $21.  Two weeks later, STX bottomed, then rallied to $28!

We have to watch Needham.  Whatever call they make on the disc drive makers, we're doing the opposite. 

3. Next day, October 13, 2005, JP Morgan downgraded STX on concerns about the entire sector.  STX bottomed two weeks later, then rallied more than 100% to $28 over the next four months!

I certainly can see how difficult it is to "predict the future," which is why I never attempt it,  but a lot of these calls are way, way-y-y off the mark, aren't they?  As a result, I don't have much faith in the numbers that these guys put out.  As I said in my last post, the timing of the calls is more interesting to me, like the examples above, and the examples in the KOMG chart.

I'll post you an updated chart of STX in that folder, in case you're interested.

[la-onda]

yahoo board quotation:
While the modest downward revision in Komag's revenue forecast for this quarter was disappointing, once again IMHO I believe the market over reacted to the news. While some have tried to assert that this announcement marked the beggining of a downward slide for Komag, there were several factors that were behind the revision.

1. STX ended the quarter with almost $90 million in excess finished goods inventory, thereby lowering the number of components required by Seagate this quarter.
2. It is believed that other customers may have over stocked their media inventories during the June quarter.
3. Samsung, which is not CURRENTLY a Komag customer, increased its share of the desktop market in the June quarter from 11% to 15%.

Now the doom and gloomsters are repeating the same old, same old hand waving arguments about Seagate & HGST cutting back future orders. Yet, they fail to mention the following:

1. At the current projected 15% CAGR for media ships thru 2010, STX will purchase 14 to 15 million disks externally in 2008 even after they get their new Woodlands 3 facility up. Last quarter, STX & MXO combined bought 12.6 million disks from Komag.
2. Many investors believe Kmoag will add Samsung as a new customer in the coming months. IMHO, sales to Samsung could account for 3 to 4 million disks/qtr by mid-07, which represents a 7% to 10% inrcease in unit ships over current levels.
3. Shipments of media on 65mm Al/NiP substrates is expected to grow next year and could contribute 3% to 5% to increased disk ships.
4. Vista launch should be a plus for PC/Drive/Media ships in 2007.

Now the naysayers have also been constantly whining over increased depreciation expenses for Komag in 2007, yet they fail to note:

1. Komag will not be increasing capacity in 1H07. This year, Komag's capital spending was an all time high of $300 million.
2. Komag will lower R&D costs in 2007 as perpendicular media quals and ramps production.
3. Komag is spending big $$$ for perpendicular and other new program quals at the moment, the number of new program quals should significantly drop in 07.
4. Komag expects a richer overall product mix in 2007.
5. As perpendicular and 65 mm media on Al/NiP ramps, yields & margins will improve.

Finally, the con arists are still trying to alarm people that the number of platters per drive will significantly drop in 07 due to higher areal densities afforded by perpendicular recording.

1. No one, including STX, sees a drop in the number of platters-per-drive in 2007.
2. As the % of consumer drive ships realtive to total ships increases, platter count actually goes up!


Analyst Conference presentation:
http://www.komag.com/investors/presentations/Citi_Sep06.pdf

[Melf Elf]

yahoo board quotation:

Oliver,

The poster sounds very knowledge and intelligent.  However, he seems a bit locked into the idea that the market always should make sense, that stocks should trade in tandem with the fundamentals, and if they don't, the market is wrong.  That can be costly.

Let's look at this statement:

Now the doom and gloomsters are repeating the same old, same old

And, at this statement:

Now the naysayers have also been constantly whining

And, at this one:

the con arists are still trying to alarm people

Whew! 

The poster seems to write with a bit of prejudice, and seems to lack objectivity.  What if. prior to earnings, another poster had written that they thought KOMG might disappoint somewhat, and that if the market didn't react well, and broke support, KOMG was a sell? 

I suspect that he'd call them a "naysayer," or a "doom and gloomer," but here's the reality:

the modest downward revision in Komag's revenue forecast for this quarter was disappointing

The market doesn't like disappoints, even modest ones.  We know that.

We can disagree all we want to with the market's reaction, but when KOMG gapped down to 42.50 before earnings, breaking the Bear Flag, then broke 41.54 support, then broke 39.17 support...UGH...it was a sell.

That's why I say that it can be very costly if we get stuck in our opinion that we're right, and that the market's reaction is wrong.  Because of that, this poster had almost no chance of selling the breaks of support in the mid to low 40s, and at 39.17, and saving himself a paper loss of 20-30%.

No offense to the guy intended,  but I'd suggest something like:

"Here's my analysis.  I think KOMG is a great company, but if the market doesn't agree with me at this point in time, and if support breaks, I'll sell it and happily buy it back at a nice 20-30% discount."

Just my opinion, of course.

[Melf Elf]

KOMG broke out of a Symmetrical Triangle a couple of hours ago, on a print of 33.86, and ten minutes ago, printed 34.12, the high of the day, so far.  The high at Data Point #4 was 34.11, so that's a "higher high."

38.49 is IN PLAY as long as KOMG holds the breakout.

Targets against the trend are less likely to get MADE. 

I've created a parallel line with the same upward slope as the trendline connecting the lows at #1 and #3, and attached it to the high at #2.  This could morph into a Bear Flag, if KOMG fails there. 

If it gets through that upper trendline, the target would have a better chance of getting MADE.

KOMG currently is BID 34.00...ASK 34.01, fourteen cents above the breakout.

EDIT: Suggested Stop: Below yesterday's low of 32.45.  If that gets taken out...
Risk is a loss of about 5%

[Melf Elf]

Another pattern breakout in KOMG this morning.

Ascending Triangle (in blue).  Target: 36.83 is IN PLAY, as long as KOMG trades above 34.11.

This target doesn't add anything to last week's Symmetrical Triangle breakout target of 38.49, but multiple breakouts are good to see.

KOMG currently is BID 34.34...ASK 34.35