Applied Materials left behind an ominous spike high immediately following its November 16th earnings report.  The stock opened the next day with a huge upside gap but was unable to maintain the powerful momentum.  By the close on the 17th AMAT had turned a 5% gain into a 2% loss.  Shares have drifted steadily lower since then taking out layers of support in the process.  This week AMAT has entered a major support zone and has begun to stabilize.  The deep post earnings pullback may be coming to an end.

AMAT began a fresh rally leg in late September.  At the November 17 peak the stock had surged over 27% during this phase.  Shares have no fully retraced this move as key support near the summer highs comes into play.  This zone, between $50.00 and $47.00, also marks the 1/3 retracement of AMAT’s entire 2017 range.  As the stock begins to regain its footing here a very low risk entry opportunity has developing.  On the downside, a close back below $45.00 would pierce the 200 day moving average indicating a much more drawn out basing process is ahead.

Some AMAT option color:  There was a seller of just over 5,000 of the Jan 50 puts at $2.30 during first half hour of trading with the stock around $49.85.  Open interest in this strike is substantial at over 11,000 contracts so it could be expressing confidence that the near term pull back has run its course. With stock bouncing back higher at around $50.60 those puts are now trading around $1.95, so timely sale so far.

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