The stock gapped higher on Thursday and set an intraday high between risky levels.
My call is to book profits on strength to monthly and semiannual risky levels at $68.28 and $69.02, respectively.
The earnings beat included upbeat guidance. The earnings coverage provided by TheStreet.com included recent Wall Street upgrades for the stock.
The Morgan Stanley price target lines up with my semiannual risky level at $69.02.
At $68.24, the semiconductor-equipment and -software provider is up 12% year to date. The stock is in a bull market, trading 85% above its March 8, 2019, low of $36.80.
Before this current bull run, the stock had a bear-market slide of 54% from its March 2018 high of $62.40 to its December 2018 low of $28.79. This is yet another example of how important charts and levels are to manage share-price volatility.
The Daily Chart for Applied Materials
Courtesy of Refinitiv XENITH
The daily chart for Applied Materials shows the formation of a golden cross on April 4, 2019, when the 50-day simple moving average rose above the 200-day simple moving average. This indicated that higher prices lay ahead. And this bullish signal tracked the stock to its all-time intraday high set today.
The close of $61.04 on Dec. 31 was an important input to my proprietary analytics. The annual value level at $58.38 provided a buy on weakness trade on Jan. 31.
The semiannual risky level is within reach to be tested at $69.02, where profits should be taken. The first-quarter value level is the lowest horizontal line at $44.38.
The close of $57.99 on Jan. 31 was an input to my analytics and resulted in the monthly risky level at $68.28 that was tested this morning.
This week’s pivot at $61.78 provided a short-term buying opportunity.
The Weekly Chart for Applied Materials
Courtesy of Refinitiv XENITH
The weekly chart for Applied Materials is neutral, with the stock above its five-week modified moving average of $61.93.
The 200-week simple moving average, or reversion to the mean, is $42.88. Note that the stock was trading around this reversion to the mean between the weeks of Oct. 12, 2018, and Jan. 25, 2019, when the average was $35.29.
The 12x3x3 weekly slow stochastic reading is projected to slip to 68.71 this week from 70.2 on Feb. 7.
Trading Strategy: Book profits with the stock between its monthly and semiannual risky levels at $68.28 and $69.02. Buy on weakness to the annual value level at $58.38.
How to use my value levels and risky levels:
The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the past nine closes in these time horizons.
Monthly levels for February were established based on the Jan. 31 closes.
New weekly levels are calculated after the end of each week.
New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.