The choice of Kulicke & Soffa Industries (NASDAQ:KLIC) comes from a systematic screening process made to find stocks that fit a disciplined growth and momentum investing plan. This approach joins Mark Minervini's strict Trend Template, a group of technical rules for finding stocks in strong uptrends, with an emphasis on fundamental growth momentum. The aim is to locate companies that are showing both good price movement and market leadership, and are also supported by improving business fundamentals, forming a possible combination of technical and fundamental health.
Technical Basis: Following the Minervini Trend Template
A central idea of the Minervini plan is to invest in the direction of the main trend, concentrating on stocks that are already in a confirmed Stage 2 advance. The Trend Template gives a clear list to filter for such stocks. A look at KLIC's chart and important measures shows it fits these key technical requirements:
- Price Above Important Moving Averages: The current price trades above the rising 50-day, 150-day, and 200-day simple moving averages (SMAs). This order shows continued buying pressure across short, medium, and long-term periods.
- Good Moving Average Order: The 50-day SMA ($61.96) is above both the 150-day ($47.72) and 200-day ($44.40) SMAs, and the 150-day SMA is above the 200-day. This positive order is a sign of a sound uptrend.
- Nearness to Highs: KLIC's price is about 146% above its 52-week low of $26.63, showing major recovery and health. While it has moved down from its recent high, it stays within a range that often comes before more progress in leading stocks.
- Better Relative Strength: With a ChartMill Relative Strength (CRS) score of 92.96, KLIC is doing better than over 92% of the market. High relative strength is a required part of the plan, as it finds market leaders that often do better during positive market periods.
This technical picture is important because it methodically removes personal bias. It makes the investor concentrate on stocks where the direction of least pressure is clearly higher, thus raising the chance of being aligned with institutional money flow.
Fundamental Driver: High Growth Momentum (HGM) Qualification
While a good chart is necessary, the Minervini idea stresses that the largest stock market winners are almost always helped by strong fundamental improvement. The "High Growth Momentum" part of the screen makes sure that technically sound stocks like KLIC also have the basic business performance to possibly continue their advance. Important measures highlight this growth path:
- Earnings Improvement: The latest quarterly EPS grew almost 19% year-over-year, a good change from the drops seen in the two earlier quarters. More notably, full-year EPS growth jumped by 400%, marking a sharp change in profitability.
- Analyst Belief: Maybe the most convincing signal is the large upward change in analyst estimates. The average EPS estimate for the next fiscal year has been changed upward by over 75% in the last three months. Such positive changes often come before continued price momentum as institutional investors revalue the stock based on better future expectations.
- Profit Margin Growth: The company's profit margin in the last reported quarter grew to 8.4%, up greatly from 3.6% in the earlier quarter. Getting better margins point to pricing ability and operational efficiency, important forces for earnings growth.
- Sales Growth Renewal: After several quarters of reduction, quarterly sales growth has become positive, increasing by over 20% year-over-year in the last report. Estimates indicate continued good sales growth ahead.
This mix of returning earnings, rising analyst confidence, and margin growth is exactly what growth and momentum investors look for. It gives a fundamental "catalyst" that can support the technical breakout, fitting with the Specific Entry Point Analysis (SEPA) part of Minervini's plan.
Consolidation and Risk Evaluation
Even the soundest setups need careful timing and risk control. According to the detailed ChartMill Technical Report, KLIC currently has an excellent Technical Rating of 9 out of 10, confirming its good trend condition. However, the report notes the Setup Quality score is a moderate 6, showing the stock is in a time of consolidation after its recent increase.
- The stock is trading within a set range ($59.30 - $77.50) over the past month.
- Important support is found in the $60.60 - $62.80 area, made by a combination of moving averages and trendlines.
- Short-term resistance is around $70.39.
This consolidation is a normal and often needed stage within a longer-term uptrend. For a plan focused on exact entries, this time of volatility reduction can be used to find a lower-risk entry point, if the stock moves out of this base with health. The technical report gives a specific study of possible entry and exit levels based on these support and resistance areas, which can be seen in full here.
Locating Like Opportunities
Kulicke & Soffa Industries shows an example in how the joining of strict trend-following rules and growth momentum filters can find possible leadership candidates. For investors looking to use this same disciplined screening process to find like opportunities, the set "High Growth Momentum + Trend Template" screen is ready for use. You can reach the screen and see current results here.
Disclaimer: This article is for informational and educational reasons only. It is not a suggestion to buy, sell, or hold any security. The study is based on set screens and past data, which are not promises of future results. Always do your own complete research, think about your personal risk tolerance and financial position, and talk with a qualified financial advisor before making any investment choices.