Magma® Design Automation (LAVA)

Company

LAVA 1-year chart LAVA 1-year chart

"Magma's software for integrated circuit (IC) design is recognized as embodying the best in semiconductor technology, enabling the world's top chip companies to "Design Ahead of the Curve."™ Magma provides EDA software for IC implementation, analysis, physical verification and characterization. Magma products are used by the world's leading engineers to create complex, high-performance ICs for consumer electronics, mobile communications, computing and networking applications, while at the same time reducing design time and costs. Magma is headquartered in San Jose, Calif., with offices around the world." (company website)

LAVA 6-month chart
LAVA 6-month chart

Buy

Magma reversed a long downtrend last August and has been moving upward ever since. At the end of April, LAVA released earnings and surprised The Market by beating Expectations by a penny. I've been intrigued by the pattern that has developed in 2007: at the beginning of each month, the price shoots up for no apparent reason, with the biggest leaps coming at two-month intervals. Well, it's a few days short of two months since the last big leap....

  • Price momentum (PPO) — picking up after a decline earlier in the month
  • Relative strength (RSI) — strengthening after a decline earlier in the month
  • Trend (ADX) — very strong, and selling pressure (-DI) has recently started declining while buying pressure (+DI) has started increasing
  • Volume — huge volume after earnings and average volume is rising

Based on technical analysis, MarketEdge calls LAVA a "buy" in a "strong upward trend."

Sell

gain Bottom line
4%

Right after I bought my shares of LAVA, the price shot up, and two days later got as high as $15.50, which would have been a profit of $1.50/share. Since then, however, it's been consolidating just above $14.50 and I put in a stop-loss order to trigger if the asking price fell to $14.50 or below, just to hang onto the profits. That happened today, so the shares sold, just 1¢ above the day's low. LAVA has been marching upward since the beginning of February, so a retracement would not be surprising — but then, I've thought that several times before. Time will tell.