Silicon Motion Rises From Hard-To-Hold Base By DONALD H. GOLD, INVESTOR'S BUSINESS DAILY Posted 10/10/2011 06:13 PM ET
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Standout performances are the trademark of great stocks. You saw one Monday from Silicon Motion Technology ( SIMO), which gained 2% and was one of the few stocks that lurched into new high ground .
What's so special about that? After all, the Nasdaq shot up 3.5%, and plenty of stocks did very well.
But the broad-market's action Monday appeared in eerily quiet volume, thanks to the Christopher Columbus holiday. Although Silicon Motion backed off its 14.45 high, volume zoomed more than twice its average. That's a signal of heavy demand.
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Scrutiny reveals a cup-shaped base that runs from May 13 through its breakout Sept. 16. The 13.54 buy point triggered a push to 13.89 in big volume on breakout day.
But the stock settled back to close at 13.50. That's just 6 cents above the trigger and barely above the midpoint of that day's range. No downside reversal there, but that action certainly lacks enthusiasm.
Silicon Motion sank to 11.40 over the next five days, assuring that those who bought into the 13.54 buy point would be stopped out.
Might that decline from 13.89 to 11.40 serve as a high handle? Yes, but volume spiked each day but one. If that's a handle, it's deeply flawed. Anyway, it didn't work.
Silicon Motion climbed to 14 on Sept. 27, pushing up a scant penny above the new 13.99 buy point (if you respected that flawed high handle). The stock reversed lower that day and turned a 4% gain into a minuscule loss.
This disappointment appeared in fast trade, which made a bad day a bit worse. Again, any buys from that poor breakout would have been shaken out.
So it doesn't matter if you see a cup-shaped base, or a cup with two high handles. Any interpretation shows a failed breakout.
Silicon Motion's big move Monday was a successful rebound from the 10-week moving average.
The biggest problem with Silicon Motion's chart is the loose and sloppy action the past few weeks. That is simply not the chart of a stock enjoying support from big-money institutions, eager to buy any small price decline.
Taiwan-based Silicon Motion designs and engineers controllers for flash memory cards and USB flash drives. Those cards drive consumer electronic devices such as cellphones, cameras and MP3 players.
Silicon Motion holds the sixth-best EPS Rating (83) in the chip-designer group. But by Relative Strength Rating, the stock is tied for first place in the group with a best-possible 99.
The chip-designer group entered Monday's session holding the No. 66 slot out of the 197 industries tracked by IBD.
While that's the middle of the pack, the group has been rising for weeks. It stood in the No. 157 slot five weeks ago.
The company suffered through a bad stretch from Q2 of 2008 through Q1 of 2010. Sales were shrinking. Earnings growth would shrink or turn into a loss.
The stock emerged in Q2 of 2010 with a 200% EPS leap, while sales rose 56% from the year-ago result.
In the past four quarters, Silicon Motion logged two triple-digit EPS gains and two more that compared to year-earlier losses. Sales growth in the past four quarters ranged from 47% to 83%. |
