Applied Materials, Inc. (AMAT) manufactures computer chips, and the stock was in an "inflating parabolic bubble" formation on its weekly chart when it traded to its all-time intraday high of $58.73 on Jan. 25. The stock closed Monday at $49.50, down 3.2% year to date and in correction territory at 15.7% below its all-time high. The stock set its 2018 low of $45.13 on Feb. 9 and has rebounded by 9.7% since then.
Analysts expect Applied Materials to deliver earnings per share between 97 cents and $1.00 when it reports results after the closing bell on Wednesday, Feb. 14. Some analysts expect strong growth in the semiconductor and display segments. The stock had been outperforming the industry until reaching its high on Jan. 25. Today, that's not the case, as the PHLX Semiconductor Index (SOX) is up 2.1% year to date. Other observers say that the company's role as a dominant player in the wafer-level chip segment could result in better-than-expected earnings results. (See also: 4 Stock Picks That Will Shine in 2018: Epoch Investment.)
The daily chart for Applied Materials
The daily chart for Applied Materials shows that the stock has been above a "golden cross" for more than 52 weeks. The 50-day simple moving average has been above the 200-day simple moving average since March 14, 2016, when the stock closed at $19.91. This indicated that higher prices would continue, and they have. The horizontal lines above the price pattern are my monthly and quarterly risky levels at $54.21 and $57.35. The lines below the price pattern are my semiannual and annual value levels of $45.69 and $37.61, respectively.
The weekly chart for Applied Materials
The weekly chart for Applied Materials is negative, with the stock below its five-week modified moving average of $52.06. The stock is above its 200-week simple moving average at $29.06, which is also the "reversion to the mean," last tested during the week of Feb. 19, 2016, when the average was $17.35. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 39.34, down from 46.91 on Feb. 9. When the stock set its high during the week of Nov. 17, the reading was 92.57, above the 90.00 threshold considered an "inflating parabolic bubble" after being above the overbought threshold of 80.00 on Feb. 2.
Given these charts and analysis, my strategy is to buy weakness to my semiannual and annual value levels of $45.69 and $37.61, respectively, and to reduce holdings on strength to my monthly quarterly risky levels of $54.21 and $57.35, respectively. The $57.35 was tested several times between Jan. 17 and Jan. 25. (For more, see: 4 Best Techs Stocks to Own in 2018: Fortune.)