PMC-Sierra

01/21/10 08:12:20 AM

by Koos van der Merwe

The DJIA is down, so why has PMC-Sierra given me a buy signal?

Security: PMCS
Position: Buy

PMC-Sierra, a leading provider of broadband communications and storage semiconductors and offers worldwide technical and sales support, including a network of offices throughout most of the world. PMC-Sierra's fourth-quarter 2009 earnings will be released after the stock market closes on January 28, 2010. Is this the reason why I have gotten a buy signal?

FIGURE 1: PMCS, MONTHLY

Graphic provided by: AdvancedGET.

Figure 1 is a monthly chart and shows how public enthusiasm at the time of the dotcom bubble pushed the share price from a low of $1.44 in August 1996 to a high of $247.26 by September 2000 — incredible for those who owned the stock. Note how the relative strength index (RSI) warned of the impending crash.

FIGURE 2: PMCS, DAILY

Graphic provided by: AdvancedGET.

Figure 2 suggests a head & shoulders pattern and shows that the neckline has been penetrated, but the target of $6.67 has not yet been reached. The chart shows a JM inside band sell signal. A JM inside band is a 15-period simple moving average (SMA) offset by 2% positive and 2% negative. There is resistance at the pivot point 7.62.

FIGURE 3: PMCS DAILY, OMNITRADER

Graphic provided by: Omnitrader.

Figure 3 is an OmniTrader chart of PMC-Sierra and is the chart that has given me the buy signal. This chart shows the following:

1. A candlestick chart with a trailing stop and Fibonacci support levels. The price is below the trailing stop level but is testing the Fibonacci support level at $8.01.
2. The MACD volume indicator has given a buy signal.
3. The vortex indicator written about in the January 2010 issue of STOCKS & COMMODITIES suggests further weakness.
4. The stochastic RSI cycle 8 period indicator has given a buy signal.
5. Finally, the vote line, which has given a buy signal with a backtest hit ratio of 100 (not shown).

To conclude, the stock has given a buy signal ahead of its financial report, and it is a strong one despite the head & shoulder pattern not yet reaching its target. With the Dow Jones Industrial Average down, we could put in a low ball bid. This is a stock that should be watched.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.