Applied Materials Stock Still Has Plenty of Room to Run

AMATAMAT Stock: Indications Support an Advance

The bullish run in Applied Materials, Inc. (NASDAQ:AMAT) stock, which began in August 2015, has been nothing short of spectacular. In that time span, AMAT stock has managed a whopping return of 160% for those savvy enough to pick up shares as the price put in a bottom.

I have reason to believe that this bullish run in Applied Materials stock still has legs, and that higher prices are still likely.

My beliefs stem from technical analysis, which is my preferred method of generating my investment views and trading strategies. For those not familiar with this method, technical analysis is a style of investment analysis that uses historical price and volume data to discern trends and forecast future prices. This style has many skeptics but, for the last two decades, I have been refining my craft in this skill set, and I can attest to the many successes I have enjoyed using this method.

When analyzing a potential investment, I have found that the best approach is to use different time frames. When the time frames coincide and project the same bias, there is merit to the investment.

The following Applied Materials price chart illustrates the long-term, big-picture view of AMAT stock.

amat chart

Chart courtesy of StockCharts.com

The long-term view of Applied Materials captures the boom-and-bust cycle that defined the dotcom bubble. In October 1998, AMAT bottomed at $4.30, and proceeded to run to a high of $45.90 in April 2000. In a 2.5-year span, the stock rose 966.44% before the bubble finally burst and a dramatic sell-off ensued that effectively erased all these gains.

For the next 15 years, Applied Materials was contained below a level of resistance at $24.00 that contained the price and thwarted any attempts for the price to move beyond it. The price action below resistance created a technical pattern known as a “rounded bottom.”

A rounded bottom is a technical pattern that is created when a price slowly turns from bearish to bullish. This technical pattern is completed when price breaks above the level of resistance that has contained price. In July 2016, AMAT finally broke above resistance at $24.00, indicating that the rounded bottom was complete and a new bullish advance was underway.

This completed technical pattern places that previous all-time high at $45.90 as the next logical price objective.

The following Applied Materials stock chart illustrates the indicator that continues to support an advance.

amat chart

Chart courtesy of StockCharts.com

The focus on the AMAT price chart above is the indicator in the lower panel labeled “MACD,” which is an acronym for the moving average convergence/divergence. MACD is a simple trend-following momentum indicator that uses signal-line crosses to distinguish between bullish and bearish momentum. A bullish cross suggests that bullish momentum has overwhelmed any bearish momentum and, as a result, it suggests that the path of least resistance is toward higher prices.

This indicator has enjoyed tremendous success in confirming whether a pullback or advance in the price is underway. In January 2013, a bullish cross confirmed that a bullish advance was underway and, in April 2015, a bearish cross confirmed that a pullback was underway.

The bullish cross that was generated in May 2016 is still intact and shows no signs of abating anytime soon. This indicator continues to support the notion that higher AMAT stock prices are likely.

The following Applied Materials stock chart illustrates further indications that support the notion of higher prices.

amat stock chart

Chart courtesy of StockCharts.com

The AMAT price chart above illustrates that the bullish ascent in 2016 began after a golden cross was generated. A golden cross is a bullish indicator that is produced when the 50-day moving average, highlighted in blue in the above chart, crosses above the 200-day moving average, highlighted in red.

This indicator is popular among traders, as they use it to confirm that a bull market is on the horizon. It is not uncommon for a price to accelerate higher after this indicator is generated.

The ascent in the price was perfectly captured using two upward-sloping parallel trend lines that define an ascending channel. These two parallel trend lines define upper resistance and lower support. This pattern is effective in defining a sustainable trend because, as long the price oscillates between these two trend lines, the trend toward higher prices will persist. This channel can also be used to define risk, because a break below this channel would suggest that a larger correction was set to ensue.

Resistance outlined by the ascending channel currently coincides with the all-time high that was set in 2000. These coinciding levels serve to increase the odds that the all-time high at $45.90 will be tested in the not-too-distant future.

Bottom Line on Applied Materials Stock

I am bullish on AMAT stock because all the indications on multiple time frames continue to suggest that higher Applied Materials stock prices are likely. I believe that the current surge toward higher prices will continue until the previous all-time high, which was set at the peak of the dotcom bubble, is tested.