Komag Inc. (KOMG)
(4/9/07)

As I've noted recently, I have my doubts the semiconductors are through just yet, and so I've had my eye out for some that could offer some reasonable trading upside, even if just near-term.  The wave patterns in KOMG have been decent enough to suggest at least a tradable recovery lies ahead, as rises have moved in fives, while declines have proceeded correctively.

Earlier on, the stock fell to 30.18 in a correction from March-September 2006, which I've labeled as an Intermediate Wave (A) on the lower left of the chart.  It proceeded to rally in an impulse pattern between September and December, before topping out in a Wave A at 41.17.  An impulsive breakout then followed the 30.29 low made on March 14, which topped out at 34.54, and pulled back correctively to a 31.55 low today.  Both events suggest Wave B therefore bottomed on March 14.  The pullback from 34.54 also retraced nearly 78.6% of the March 26-April 9 pullback, and as a whole, there's a bit of good evidence that the stock should be able to rally short to near-term.  As the wave labels suggest, we're counting the current pullback as a small second wave pattern, which if completed should be getting ready to launch Wave of C.  This would be the pattern offering the best upside gains, and would project a third wave top at the 38 area.  Notice that I also added two ALT waves in blue, in the event that Wave B were actually unfinished, in which case a small ABC zigzag pattern would be tracing out, which would sill be tradable, but probably not exceeding the 35-36 area.  We'd therefore minimally be looking for about $3 of upside, to potentially $9 if the larger ABC plays out.  You might consider an entry on a move through 32.70, and it's suggested to limit risk to a stop at 30, or just few ticks below, as a break below this level (which is longer-term support) would otherwise invalidate the wave count.

For an option play, we're looking at the September 2007 $35 Call (symbol QKXIG) currently selling for $2.55 with the Delta at 0.46, which is decent considering the option is still a couple of dollars OTM.

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