Novellus Consolidates After Breakout

05/11/07 02:04:28 PM

by Arthur Hill

Novellus broke a major resistance in November, and the consolidation over the last few months looks like a rest before the next leg up begins.

Security: NVLS
Position: Accumulate

On the first weekly chart (Figure 1), the stock traded between $21 and $31 from October 2004 to October 2006. This amounts to a two-year base, and Novellus (NVLS) broke above base resistance with a surge in November. The breakout overcame a two-year supply overhang around $31, and the forces of demand are in control of this stock.

FIGURE 1: NOVELLUS, WEEKLY. Here, the stock traded between 21 and 31 from October 2004 to October 2006.

Graphic provided by: MetaStock.

The breakout is holding. NVLS dipped back to $30 after the breakout but this level held, and broken resistance is turning into support. This is classic technical analysis, and the stock consolidated after the resistance breakout for the last few months. This looks like a rest after the breakout, and a move above 35 would signal another continuation higher.

Figure 2 shows moving average evidence for long-term strength. The 50-week moving average is on the verge of breaking above the 200-week moving average for the first time since August 2002. These are some seriously long-term moving averages, and a golden cross denotes a long-term shift in sentiment toward the stock. The 50-week was below the 200-week for over four years, and a break above 35 in the stock would complete this crossover.

FIGURE 2: NOVELLUS, WEEKLY. Here, the 50-week moving average is on the verge of breaking above the 200-week moving average for the first time since August 2002.

Graphic provided by: MetaStock.

For upside targets, I am going to look at the breakout projection and prior resistance. The base extends from $21 to $31 (10) and a breakout would project another 10 points from resistance or a move to around $41. That is the first target. The green box shows a resistance zone from the prior highs and it extends from $45 to $57. The middle is around $51 and this is the second target.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Novellus Consolidates After Breakout

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