(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of chipmaker Lam Research Corp. (LRCX) have rocketed about 7 percent higher since January 17. The stock fell sharply at the end of November 2017, and is just now showing signs of a recovery, which could send shares bouncing back to $220 based on a technical analysis.
The shares also received a boost after fellow semiconductor equipment supplier ASML Holdings (ASML) jumped following its latest quarterly results. The positive news gave Lam Research the spark it had been missing for nearly two months.
A Rise To $220
The chart tells the story of a stock that has found two significant forms of support around $185. That support has proven strong over the past few weeks. Because the stock fell so sharply at the end of the November, there is no resistance from Lam's current price around $205 until it gets back to its previous highs around $220.
Buyers Coming In
The chart above also shows the sharp rise in volume as the stock was moving lower in late November, and how the volume stabilized and subsided when the stock was able to find support around $185. But the trading volume has once again been rising as the stock has started to creep back up, in a sign that buyers are beginning to step back into the name.
The relative strength index (RSI) is another positive sign that has been foretelling Lam's recent breakout. The RSI reading bottomed right around 30, indicating shares were oversold and began trending higher, well in advance of the stock's rise.
An RSI that is trending higher while a stock is falling or trading sideways could be viewed as a bullish divergence indicator. Lam's RSI reading currently sits at roughly 64 and has some time before it would be considered overbought at 70. (See also: Overbought Or Oversold? Use The Relative Strength Index To Find Out.)
Lam is scheduled to report its fiscal second-quarter 2018 results on January 24. Consensus analyst estimates are expecting 2Q revenue to have climbed 36 percent to $2.565 billion, with earnings are projected to be up 63 percent to $3.66, according to YCharts.
So while the technical chart seems to be telling of a rise back to previous highs, it may be the fundamental news that determines how much higher Lam stock has left to climb.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.