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Technology Stocks : VLSI Technology - Waiting for good news from NASDAQ !!!
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To: Hashem Akbari who wrote (3120)3/7/1998 1:00:00 PM
From: DanZ  Read Replies (2) of 6565
 
Hashem,

Nice catch! The press release that you are referring to was distributed by Business Wire and they issued a new press release after you spoke to VLSI. It looks like they just inadvertently left the President's name out and added his name to the new release. I wonder if your call had anything to do with the correction being released? LOL

To GWM:

I don't trade stocks based on fundamental analysis because I think stock prices move ahead of fundamentals. Further, I don't think anybody can predict what a stock will do. The best you can do is to limit your risk by buying stocks near support and selling near resistance. Stocks can and do break support, and if this happens, you have to decide if you want to hold based on where the next support level is. While I don't think one can predict what a stock will do, I do think technical indicators can be used to increase one's confidence level in the support and resistance and for trend analysis.

Given that backdrop, VLSI has a lot of support on both the daily and weekly charts between 18 and 19. The next support level if this is broken is between 15 and 16. The stock has resistance at 22 and that is my target. Assuming one takes the loss if 18 is broken, the downside risk is 3/4 and the upside potential is 3 1/4. This is a very good risk to reward and makes the stock an attractive buy at this time. From a chart perspective, it is important that the stock stabilize and not trade below the previous day's low.

Four things are giving me confidence that the support at 18 will hold:

Oscillators: The stochastic oscillator indicates that VLSI is oversold with the daily reading currently at %K 11 and %D 19. The lowest the stochastic got when the stock based at 18 3/4 last January was %K 12 and %D 15. This also indicates a small bullish divergence since the stock traded below where it was in January but the %D is above where it was in January. By the way, the lowest the stochastic got when the stock based in the 18 area in December was %K 14 %D 21.

Relative Strength: The relative strength made a low of 22 in December, 26 in January, and now stands at 31. This is a pattern of rising relative strength and sets up a bullish divergence.

Money flow: The money flow was very strong on February 27 when the stock tanked and has been neutral since then. While it would be better if the money flow had been positive last week, the neutral reading indicates that there are no big sellers between 18 and 19.

Reaction to news last week: The stock held support in the face of bad news from INTC and MOT and also upticked after Soundview downgraded the stock. This leads me to believe that all the bad news is priced into the stock at this time. Earnings estimates have been reduced to 11 cents and the stock is down from $26 just a few weeks ago, already discounting these downgrades.
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