After the closing bell sounded yesterday, Novellus Systems (NASDAQ: NVLS) reported a second-quarter loss, thanks to falling semiconductor sales stemming from general weakness in the semiconductor sector.
The firm reported a second-quarter net loss of 52 cents per share, or 41 cents per share excluding items. Although this loss was three cents wider than the consensus estimate, the shares managed to bounce off their after-hours lows -- thanks mainly to NVLS's forecast.
As noted, the stock managed to rebound a bit in after-market trading -- paring losses a tad. This rebound came despite expectations that the company would be at the high end of its forecast, or would top expectations.
I am a bit concerned that dropping semiconductor sales will continue to weigh on NVLS, but I am even more concerned about the stock's technical prospects. Shares of NVLS have steadily declined since the turn of the century, dropping from an all-time high in the $70 region to their current perch in the mid-$18 range. The progression has been steady, with several rallies followed by pullbacks. Why won't this happen this time? Mainly because of the stock's 20-month moving average. When NVLS rallied in the past, it managed to break through this trendline -- but I'm not sure it will happen this time. In fact, with the exception of a roughly 12-month-long period starting in late 2006, NVLS has proven no inclination to top this resistance -- dating back to early 2004.
The company can predict all it wants, but until the stock starts performing better NVLS is a very risky proposition. With double-barreled resistance in the form of the $19 level and the equity's 20-month trendline, NVLS is going to need a lot more than a good forecast to help it get back to the prosperity the company enjoyed nearly 10 years ago.
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