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Three White Soldiers for Novellus

07/15/05 12:04:25 PM
by Arthur Hill

A candlestick reversal off a key retracement spells higher prices for Novellus Systems (NVLS).

Security:   NVLS
Position:   Buy

After a May 2005 surge to resistance, Novellus (NVLS) corrected rather hard with a sharp decline to 24.5. Despite the severity of this decline, it still marked a 62% retracement of the prior advance. The 62% stems from the Fibonacci ratio 0.618. Corrections often retrace this portion of the prior advance. Notice that the decline started slowing at the end of June and a spinning top formed on July 5 (green arrow). This showed indecision at the 62% retracement mark.

Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
Indecision turned into a reversal with a bullish Three White Soldiers pattern. This candlestick reversal is bullish and forms with three long white candlesticks. In addition, each close should be near the high for the day and each open should be below the close of the prior day. The third candlestick failed to open below the close of the prior candlestick, but clearly closed near the high. Three long white candlesticks is the main rule of recognition, and this has been met.

In addition to the three white soldiers, the stock surged on good volume, broke trendline resistance and the MACD moved above its signal line. This all lends further legitimacy to the candlestick reversal, especially the surge in volume three days ago. The early July low now becomes key support, and this is the level to watch for signs of a failed reversal.

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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