Well-rounded due diligence on a stock should take into account a basic analysis of core company trends such as top-line and bottom-line performance, margins, analyst views, cash flows, and overall balance sheet health. But that’s not all. One must also take a dispassionate, professional survey of a stocks technical characteristics.
For that, we must turn to the chart. Today?s object of technical analysis is Applied Materials Inc. (AMAT).
We will start our analysis by examining overall direction of trend. In the most basic sense, we can see that AMAT has been working in a bullish posture on a larger timeframe, as indicated by the relative positioning of the 50-day and 200-day simple moving averages. In other words, if the 50-day moving average is trading above the 200-day, it is traditionally seen as a bullish chart trend. Conversely, if the 50-day moving average is trading below the 200-day, it is traditionally labeled a bearish trend or bearing. As noted, for AMAT, that adds up to a bullish designation the main point being that we have money flows leaning in a generally positive direction for the stock.
Next, we will turn to our analysis of the primary oscillating indicators to assess the degree to which the stock is stretched in its movement at present. The key tools for this analysis are the 14-day Relative Strength Indicator (RSI) and the 20-day fast stochastic. In each case, the point is to measure overbought or oversold behavior ie, whether the stock has gone too far too fast in one direction or the other. If we see a score above 75 (overbought) or below 25 (oversold), history suggests one is wise to expect some reversion to the mean. For AMAT, we can see that our 14-day RSI shows a score of 55.27%, while the 20-day fast stochastic reports a score of 56.05%.
Next, we will turn to key levels of interest on the chart, with an emphasis on Fibonacci retrace points, range extremes, and major moving averages. In this case, the critical 38.2% level drawn off the 52-week high of $60.89 sits at $50.27. AMAT also has additional resistance above at the stocks 200-day simple moving average, which sits at $ 47.60.
We also want to look at relative performance and overall volatility scoring to understand value and risk in play. AMAT has moved $+3.19 over the past month or so. Over the trailing 100 days, the stock is outperforming the S&P 500 by 9.76%. This movement has come on a more volatile bearing from one day to the next relative to the broader market, according to the stocks 36-month beta.
Similarly, we can see that the stocks recent action has come on a historical volatility score of 27.56%. To get that score, one has to take the standard deviation of returns for a random trading input assuming buying the stock at a given average price during the specified period. On a more basic level, one might look at the 20-day ATR as a percentage of its 20-day moving average. That measure gives us a volatility score of 2.79%.
Finally, we?ve spent some time looking at price as a factor in many forms and from many angles. But what about volume? Notably, many chartists see volume as more indicative for conviction in bearing or pattern than price measures, averages, or oscillators. Volume records the true degree of participation involved in a stock. If price pattern is like a word written on a word processor, volume is like the font size and punctuation. In this case, we want to examine relative volume measures to get a feel for interest in the stock of late. Right now, this stock has been showing weak relative volume, which indicates lack of interest among those making a market for shares of the stock, and that should be seen as a key factor in drawing conclusions about your level of interest as well.
That wraps up todays analysis, but we will be sure to check back on this stock again soon.