Applied Materials: What Price History Can Tell Us

By Bryan McCormick

The chart of Applied Materials (AMAT), which reports earnings tomorrow, is one of those trickier examples that at first appears to offer few hints as to possible price movement.

If we look at the chipmaking equipment company's daily chart above, the one easy conclusion is that the resistance line, which was the top of a shorter-term bearish price channel, looks important. The intersection of AMAT's price with that line would put price roughly at the $13.70 level.

It would take a breakout above this level to snap the bearish trend defined, however loosely, by that line. Therefore, if the news is good enough, a move above this line would be bullish and an indication of a potential trend change on a daily basis.

But looking at the weekly chart above, the price channel we were talking about in the daily time frame looks a lot better defined and more like a potential bullish "flag" pattern. While by no means perfect, enough of the formation is intact (as shown by the yellow lines) to suggest that a breach above $13.70 might indeed have real bullish implications up to the $16 area as indicated by the vertical blue line.

What if the news is bad? If we switch back to the daily chart, in July we can see a small blank spot, a gap, where price moved up bullishly. That area was tested in the recent move down and puts the $11.50 area in sight as a downside objective in the event of a disappointment.

All this shows that viewing charts in multiple time frames is a good practice, as we can see patterns and levels we might otherwise overlook. In this case, the risks and rewards look roughly balanced, as far as the pattern and price history can tell us.

(Chart data provided by Thomson Reuters)

Comments

[richjoy403:]

Interesting charts and discussion of AMAT (which I own).
I'll keep this in mind as I watch the price action following tomorrow's
earnings release...it may also be instructive.

Nov 11 08:18 AM