by Serge Berger | March 21, 2014 8:16 am
Semiconductor company Applied Materials (AMAT) reached fresh multiyear highs as AMAT stock powered higher on the back of positive comments out of Nomura. And while Thursday’s 3.7% rally has further extended the year-to-date rally, more importantly, it had positive implications on the longer-term chart.
Nomura analyst Romit Shah on Thursday initiated coverage on this oldie but goodie semiconductor company. The analyst rates AMAT stock a “buy” and has a $30 price target on it, which would represent a roughly 50% improvement from current prices. Shah justifies his bullishness by saying the Street might be underestimating the company’s earnings power.
Because semiconductor stocks historically have been an important group to watch — not only in terms of the leading indicator status, but also because the stocks routinely offer great opportunities for active investors and traders — I always keep a close eye on them.
With that in mind, note that while Applied Materials, like many of its competitors, still remains far from the levels it enjoyed 14 years ago at the peak of the “Internet bubble,” the more bullish posture over the past few years is obvious. For AMAT stock, after completing a marginally higher low in the 2011-12 period (vs. its late 2008 lows), the real bullish breakthrough came in September 2013 when the stock cleanly blasted past the long-term diagonal resistance line (black) on the weekly chart below.
In technical near-perfection, AMAT then spent the following three months consolidating above the former resistance line and retesting the breakout point. Ultimately, however, patience paid off when Applied Materials again began to rally and further confirm the September 2013 breakout in February after the earnings report.
With the long-term downtrend now firmly broken, long and medium-term investors can now play this stock from the long side with better comfort. While this doesn’t mean that the stock will never again be at risk of a 20% mean-reversion correction, it does mean that the winds should now be at the back of the bulls again for the foreseeable future.
This brings me to the daily chart of AMAT stock, where I can speak of an equally impressive-looking picture. The mid-February rally broke the stock out of its multimonth consolidation range, which then quickly again led to another sideways move.
With Thursday’s rally this latest consolidation zone also has been resolved to the upside, and this now opens AMAT stock toward the $22-$23 area over the coming couple of months, if not weeks. Momentum is on the side of Applied Materials, and until this momentum breaks, I prefer to ride in the direction of the current.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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