AMAT Stock: Potential for More Explosive Gains
Applied Materials, Inc. (NASDAQ: AMAT) stock has spent the summer consolidating around a very important and significant level. This level marked the previous all-time high in AMAT stock that was set in 2000, which marked the peak of the dot-com bubble. Just reaching this level is quite an accomplishment, but breaking above it on a sustained basis will be a phenomenal feat because it would serve to suggest that much higher Applied Materials stock prices are on the horizon.
The good news I have to share is that the price action on the AMAT price chart is suggesting that a move towards higher stock prices is now in development. Using a company’s stock chart to generate a view on an investment is known as technical analysis. This is my preferred method for analyzing an investment because when it is applied appropriately, the results are both timely and outstanding.
The following the stock chart illustrates the type of accomplishment it was for AMAT stock to attain the level that marked the previous all-time high that was set in 2000.
Chart courtesy of StockCharts.com
This chart of the stock captures the boom-and-bust cycle that defined the dot-com bubble that peaked in 2000. The last stages of this bubble were where most of the gains were made. In October 1998, AMAT stock bottomed at $4.30 and proceeded to run to a high of $45.90 in April 2000. This represented an incredible return of 966.44% in a two-and-a-half-year time span. The problem with bubbles is that the gains are short-lived, and when the bubble burst, most of the gains were erased.
It has taken 17 years forApplied Materials stock to return and test the previous all-time high, and much of the run towards higher stock prices has happened within the last 18 months. This run began to accelerate after the stock price was able to break above a key level of price resistance that stood at $24.00.
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This level contained the stock price from advancing for approximately 15 years, and it was this exact price point that was responsible for creating the technical pattern known as a “rounded bottom.”
A rounded bottom is a technical price pattern that is created when the stock price slowly transitions from a bearish trend to a bullish one. This technical price pattern was competed when Applied Materials stock closed above $24.00 on a sustained basis in July 2016. Since this feat was accomplished, the run towards higher prices has been relentless.
The only level of price resistance remaining stood at the previous all-time high at $45.90. AMAT shares have reached this level and have created a constructive price pattern around this metric.
The following Applied Materials stock chart illustrates the constructive price pattern that has been created at this very significant and important price point.
Chart courtesy of StockCharts.com
This AMAT stock chart illustrates that while the stock price was testing the previous all-time high at $45.90, the price action was creating a consolidation triangle.
This pattern is identified by the price action, which contains a series of lower highs and higher lows. This consolidation triangle is best captured using two converging trend lines that serve to define levels of price support and price resistance.
As the pattern develops, the trading action causes a contraction of space between support and resistance. This contraction of space causes momentum to build within the pattern that is released when the stock price breaks above resistance or below support. This is why I tend to focus much of my attention on consolidation triangles—they are known for their powerful and explosive breakouts.
On September 18, Applied Materials stock exited the consolidation triangle by breaking above resistance, which is now suggesting that a move towards higher stock prices is now in development.
This feat also marks a new all-time high. New all-time highs are significant because there is no overhead resistance to contain the price from advancing.
When a new all-time high is created, every investor who is carrying a bearish position is underwater and showing a loss. As the price appreciates, those losses continue to mount and the need to cover their positions continues to grow. This dynamic creates short-covering rallies that have been known to create epic advances in a company’s stock price.
There is a caveat, of course. This bullish view of things to come is predicated on the notion that the AMAT stock price doesn’t fall back within the consolidation triangle, which would negate the bullish implications implied by it.
Applied Materials stock has just completed a technical price pattern that implies that higher stock prices are on the horizon. The technical price pattern developed around the previous all-time high, which was set in 2000. Breaking above an all-time high that has stood for such a long time magnifies the bullish implications suggested by the completed price pattern. As a result, much higher AMAT stock price can now be expected to follow.