Applied Materials has had a rough go since the mid March highs.  After putting in lower monthly highs in mid April and mid May the stock took a nasty post earnings spill(-8.25%)on May 18th.  AMAT mounted a slight rebound before turning lower in early June after bumping up against a very heavy 200 day moving average.  At the June and July lows major support near the February 9th spike low($45.00)held up well until a second straight post earnings flush on August 17.  AMAT fell nearly 8% again as downside volume surged to its heaviest level in years.  Since then shares have been falling steadily.  At this week’s low AMAT is down nearly 30% since its last earnings report(8/16)and down 50% from the 2018 peak.  After this teeth chattering sell off a low risk entry opportunity may be developing.

At current levels AMAT is at a much deeper oversold level(weekly MACD)than it was at the 2008 lows.  The stock was trading below $8.00 back then and looked headed to zero.

AMAT is testing its upward sloping 40 week moving average($33.65)for the first time since mid February/2016.  The stock was just beginning to rebound after the deep sell off the month before.

The 2017 low($31.65)was put in the first week of the year.  AMAT went on to ten straight weekly gains immediately after.

AMAT’s next earnings report is a long way off(Nov. 16).

In the near term we consider AMAT a fairly low risk buy near current levels.  The $33.70 to $31.60 area is a major support zone.  The 2016 high and 40 week moving average mark the upper band with the 2017 low near the lower band.  On the downside, a weekly close below $30.00 would be a clear warning sign that a more prolonged basing pattern will be needed before AMAT is able to mount a meaningful comeback.

At time of publication we are long AMAT in some managed accounts.

1 p.m. Central Time Update by Bob von Halle

Perhaps it was just a coincidence (although I would prefer it was the result of Gary’s insightful post!), but it was a very quiet day in AMAT options (only notable trades were in the weekly expiring $34 calls that were trading for pennies) when all of a sudden shortly after Gary’s post, the November $37 call strike (which happened to have the most open interest at over 10,000 contracts) starting trading decent size between the $.52 and $.54 zone with almost 8,000 contracts having changed hands as I type this with 2 hours left to go in the trading day. Stock is now at $33.55 up almost $.80 on the day. Implied volatility is right around 40% which is definitely on the high side of its recent 30-40% range.