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Novellus Underperforms Nasdaq

01/26/04 10:13:02 AM
by Arthur Hill

Novellus (NVLS), an integral part of the semiconductor group, has doubled since its Oct-02 lows, but has actually underperformed the Nasdaq since Nov-02. A little underperformance is negligible, however, this underperformance is becoming chronic and could come back to haunt the stock.

Security:   NVLS
Position:   Hold

The price relative compares the performance of NVLS to that of the Nasdaq by plotting a ratio of the two. Based on the January 23 close, the ratio stood at 1.87 (NVLS/Nasdaq or 39.89/2124 = 1.87). NVLS outperforms when the price relative advances (ratio expands) and underperforms when the price relative declines (ratio contracts).

NVLS led the Nasdaq higher from Oct-01 to Mar-02 (green arrow) and lower from Mar-02 to Sep-02 (red arrow). Even though the stock has advanced from below 20 to above 40 with a series of higher highs, the price relative formed a series of lower highs (gray arrows). Most recently, the price relative broke below the lower (magenta) trendline and further weakness below the May and September reaction lows would be most ominous. Semiconductors are an important group in the Nasdaq and relative weakness in a key component does not bode well for either.

Graphic provided by: MetaStock.
Looking at the actual price chart, NVLS formed a large rising wedge (magenta trendlines). Volume was above average until mid-June, but below average from mid-June to January as buying interest tailed off. As long as the lower trendline holds, the wedge is still rising and the trend is technically up. Notice that the lower trendline has been touched at least three times, which makes it valid. A move below the lower trendline (approximately 39) would be negative and further weakness below the August/September lows (33) would be most bearish. This would signal a continuation of the prior decline (54.48 to 19.40) and project further weakness below the Oct-02 low.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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Date: 02/04/04Rank: 3Comment: 

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