Applied Materials, Inc. (NASDAQ: AMAT) seems to be getting ready for a price bump in the short-term as per the latest charts. The company provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.
Bullish Move – Chart Indications
#1 Downtrend Channel Breakout: As you can see from the daily chart, the stock has been forming a downtrend channel during the past several months. This is marked in pink color. The stock had typically taken support at the bottom of the channel before bouncing back. The stock has currently broken out of the downtrend channel, indicating possible bullishness.
AMAT – Daily Chart
#2 Price above MA: The stock is currently above the short-term moving average of 50-day SMA, indicating that the bulls currently have an upper hand.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line is currently above the (-DI) line and the ADX line is starting to move higher from below the (+DI) and (-DI) lines.
#4 Bullish RSI: In the daily chart, the RSI is currently above 50 and moving higher. This is a possible bullish sign.
#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#6 Flag Pattern Breakout: As you can see from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in purple color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern. The stock is also trading above its 200-week SMA. All these are possible bullish signs.
AMAT – Weekly Chart
#7 Bullish MACD: The MACD line is above the MACD signal line in the weekly chart, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for AMAT is above $111.20.
TP: Our target prices are $120 and $126 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $106.00. Note that the stop loss is on a closing basis.
Our target potential upside is 8% to 13% in the next 3-6 months.
For a risk of $5.20, our first target reward is $8.80 and the second target reward is $14.80. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel breakout level with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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