NVLS

[lancefur]

What is the main difference between a simple moving average and an expontenial one as it relates to this stock? And whould that hold true as a rule for all stocks or just certain ones?

[David Randolph]

What is the main difference between a simple moving average and an expontenial one as it relates to this stock? And whould that hold true as a rule for all stocks or just certain ones?

A simple moving average gives equal weight to all values of the moving average. An exponential moving average gives more weight to more recent values.

This way the exponential moving average reacts faster to short term price developments, but it also gives more false signals, when compared to a simple moving average.

When considering moving averages as support or resistance levels, you can use one or another, but you can adapt your analysis to use the one the stock is responding to. NVLS reacted positively after touching the exponential MA, and it didn't touch the simple MA, so I changed my MA from simple to exponential.

If you don't have a clue of what a moving average is, don't worry, just ask and I'll be glad to reply. To make professional technical analysis you need Equis Software Metastock.

[Melf Elf]

Today the stock traded down quite a lot, made a low at $32.20 and rebounded strongly to finish 0.82% up on the day.

Well, the simple moving average was standing at $31.92, but the exponential  was at ... $32.20 !

David,

And, the Rectangle target of 32.19 MADE, within one penny, at your 50EMA.

If 33.54 gets printed, 32.19 would be IN PLAY.

Math for The Rectangle:

34.97 - the more conservative of the 34.97...35.00 highs.

33.58 - the most conservative of the 33.55...33.58...33.58 lows.

34.97 - 33.58 = 1.39 Points.  33.58 - 1.39 = Target: 32.19

[David Randolph]

Yes, that's right Melf Elf, thanks for the updated chart.

NVLS couldn't push too high today because $33.55 was a support level, so now it works as a short term resistance. Volume was kind of weak today on NVLS.

I'm already feeling some pain because of selling awesome stocks due to short term worries, like my dear airlines and ONSM, for example (ONSM not so safe, but still very hot).

I don't want to sell NVLS and cry a few weeks from now. Because NVLS is a great stock too, both from a technical and fundamental perspective, as you can read on the initial analysis of this thread.

I'll keep on holding NVLS.

[David Randolph]

I feel the discussion around NVLS has been a bit biased towards technical analysis (my and Melf Elf's fault, but it has been great), and in over 6 pages we have only the initial analysis and some comments on analysts downgrades to support the fundamentally bullish case on the stock.

To close some of that gap this post will be strictly fundamental. 

First, let's study the quarterly revenue and gross margin graphs:



You can see on the graph above that, after being very stable for the five quarters between Q4 2004 and Q4 2005, revenues started rising strongly in 2006, from $332 M in Q4 2005 to $444 M in Q3 2006.

As importantly, gross margin rose from 49% to 55% over the same period.

The share price responded to the fundamental improvement, and NVLS stock rose 36%, from Q4 2005 to the present. Revenue growth from the same period a year ago was 31% for NVLS and just 9.3% for the Semiconductor Equipment & Materials industry. Also NVLS seems to be much more efficient than its competitors, because NVLS's gross margin is 55% and the industry average is just 42%. Some of these fundamental advantages are already discounted by the share price, as the richer revenue multiple of 2.44 for NVLS and 1.58 for the industry implies.

But, as we'll see over the EPS and net margin graph, NVLS still looks undervalued:



On this quarterly EPS graph you can see profits jumped a lot in Q2 and Q3, and Q3 2006 was the second best quarter of the last 46 quarters, going back to Q2 1995.

Expected EPS for the full year of 2006 is $1.78, so the trailing earnings multiple is just 18.4, and the industry average is 24. NVLS looks to be 30% undervalued, and I think it should be valued above the industry average, because gross margin, net profit margin and growth rates are higher than average.

NVLS EPS has been growing 16% a quarter for the last 11 quarters.

I know about the several downgrades from other analysts, but that only makes my belief stronger, because at the same time they issued those bearish research pieces, NVLS shares kept on climbing.

Fundamentals say the stock is undervalued. Technical analysis is bullish, despite some very short term weakness (remember, this is a $4 B company, one shouldn't expect it to rise fast).

I'll continue holding NVLS.

[David Randolph]

Despite the continuing consolidation phase on NVLS, I'll keep on holding the stock, due to medium term technical factors and long term fundamentals.

[David Randolph]

NVLS was due to rally strongly today, but the general market weakness didn't let it fly too much. Anyway, it was a positive reaction to the 50 days moving average that I welcome. Will keep holding NVLS.

[Melf Elf]

The Channel break target of 30.82 MADE this morning after the gap down on the green trendline failed to hold, as support.  That's a return to the bottom of the channel, at Red #2.

MACD did a good job as a "lead indictor" at the 35.00 top (next post).

[Melf Elf]

The Triple Negative divergence in the MACD occurred exactly at the 35.00 top, then the MACD turned down from there.  The 34.97 re-test of the high a couple of days later failed, and we got the short-term double top. 

NVLS currently is at two-month lows, so although it looked like only a short-term signal, these signals also can be a "first alert" for something more than just the very short-term.

[lancefur]

So what you are saying is that ithis could turn out to be a view to steady declines? I know this is the technical picture of the stock but how does this marry up to the current fundamentals? And is there any news that is preventing this stock from doing what it should be doing?

[David Randolph]

NVLS had a nasty technical breakdown today. Melf Elf was right at the $35 top, hats off to him

The whole semiconductor sector was bleeding today, and NVLS was especially hit by the following news:

• Lam Research forecast sinks chip-equipment stocks
at MarketWatch (Thu 5:11pm)

I'm afraid the semiconductor industry, being cyclical, is at its top. I see LRCX has even better fundamentals than NVLS, and it fell 15% on the news

It will take all in me to admit this mistake, especially after all I wrote on this thread, but I need to be humble and recognize the fact that the market has proved me wrong.

The plan is to SELL NVLS tomorrow, this isn't a business to own for the long term and the short term risk can be high, I'm sorry I took so long to perceive it

The lesson learned is: fundamentals must be seen in conjunction with the industry's characteristics. If the industry is cyclical, fundamentals will be the best at the top and the worst at the bottom. It's more complex than just ratios and comparisons with the industry's average valuation. Live, learn, move on to be a better trader.

[David Randolph]

Just leaving an updated chart, making sure NVLS is on my Metastock database: