Applied Materials Reports Earnings With Stock Holding a Value Level

Applied Materials, Inc. (AMAT) is a semiconductor equipment company and software provider. It makes computer chips for electronic devices including flat panel TVs, smartphones, and solar products. The company is set to report earnings after the closing bell on Thursday, Aug. 15, with the stock above its monthly value level at $46.33.

The stock has had a solid performance so far in 2019, up 42.7% year to date and in bull market territory at 62.2% above its Dec. 26 low of $28.79. In the longer term, Applied Materials is consolidating a bear market decline of 53.8% from its all-time intraday high of $62.40 set during the week of March 16, 2018, down to its Dec. 26 low. The stock set its 2019 high of $52.42 on July 24 and is in correction territory at 10.9% below this level.

Applied Materials reports quarterly results on Thursday afternoon, and analysts expect the company to post earnings per share (EPS) of 70 cents to 72 cents. The stock has a favorable P/E ratio of 12.63 and offers a dividend yield of 1.81%, according to Macrotrends. Wall Street indicates that the company is positioned to benefit from the next wave of technology with its initiatives in big data and artificial intelligence applications. The company has a winning streak of beating EPS estimates in 15 consecutive quarters.

The daily chart for Applied Materials

The daily chart for Applied Materials shows the formation of a "golden cross" on April 4, when the 50-day simple moving average (SMA) rose above the 200-day SMA to indicate that higher prices lie ahead. This bullish signal tracked the stock to its July 24 high at $52.42. Before this strength, investors could have bought the stock on weakness to the 200-day SMA at $38.81 on May 13.

When the stock traded as low as $28.79 on Dec. 26, that day became a "key reversal," as the stock closed that trading session at $30.64, above the Dec. 24 high of $30.32. The close of $32.74 on Dec. 31 was an important input to my proprietary analytics, and the annual value level remains at $37.57. The stock could have been bought at this level between Jan. 24 and March 8. The close of $44.91 on June 28 was another important input to my proprietary analytics. This resulted in a quarterly pivot at $48.89 and a semiannual risky level at $55.47. The close of $49.37 on July 31 was another input that resulted in a monthly pivot for August at $46.33, which has been a magnet.

The weekly chart for Applied Materials

The weekly chart for Applied Materials would be negative given a close this week below its five-week modified moving average of $46.36. The 200-week SMA, or "reversion to the mean," at $37.94 is a buy level. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week declining to 71.78, down from 76.10 on Aug. 9. Note how the "reversion to the mean" was a buy level between the weeks of Oct. 12 and Jan. 25.

Trading strategy: Buy Applied Materials stock on weakness to the 200-day SMA and 200-week SMA at $39.95 and $37.94, respectively, and reduce holdings on strength to its quarterly pivot at $48.89 and to its semiannual risky level at $55.47. The monthly pivot at $46.33 remains a magnet.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on July 31. The quarterly level was changed at the end of June.

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 shares 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 their 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.