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Applied Complexity Analysis - NOVL


Thx Scotto!


Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

Novell's (NOVL) decline from February 2004 has nearly traced out a completed impulsive wave down from its $14.24 peak, losing 65% of its value in the process and creating some nice bearish sentiment along the way: short interest (at 19mm shares) is the highest it has been in over 10 years while 11 sell-side analysts have it as a hold or sell while 7 remain a buy. DeMark indicators, the wave pattern, momentum divergences and parallel channel trend lines all suggest that NOVL 'needs' potentially one more new low beneath the February 28th low of $4.94 to put in a good multi-month bottom and usher in a corrective bounce that could take NOVL up to Fibonacci resistances in the $8-10 area at least.

It is possible, though unattractive technically, to consider the February 28th lows as 'the' 5th wave bottom we are looking for. We do not believe this to be the case because of the manner in which (so far) NOVL has bounced from those lows as well as the pattern of the decline from the November 2004 peaks. Alas, only a move above $6.55 would allow us to confidently assume that the February 28th lows were significant. Otherwise, we will wait for the better risk/reward trade scenario and anticipate one more slight new low beneath $4.94 in NOVL over the next several weeks (not advice).

Though the expected entire multi-month advance would be significant from a % standpoint, it would still be only corrective; the bearish trend would be expected to accelerate after that corrective bounce is complete, driving NOVL to well below its August 2002 lows in time. For now however, we believe the risks are squarely skewed to the upside and we'll watch closely for the scenario we are looking for: one more new low beneath $4.94 OR an impulsive advance above $6.55. In the meantime, it will pay to be patient and attentive.

Please note: We are now able to offer our proprietary complexity model analysis on both stocks and/or stock indices as a daily service to institutional investors and a select number of individual investors. There are several different services available; each are provided on a monthly subscription basis and cover all U.S. indices and all U.S. stocks. Please contact us for details and rates.

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No positions in stocks mentioned.

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