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What to Expect from Applied Materials’ Fiscal 3Q17 Earnings

PART:
1 2 3 4 5 6 7 8 9 10 11
Part 10
What to Expect from Applied Materials’ Fiscal 3Q17 Earnings PART 10 OF 11

In Which Direction Is AMAT’s Short-Term Stock Price Momentum Skewed?

AMAT’s stock price momentum

The semiconductor equipment market is highly volatile, with Applied Materials (AMAT) and its peers having a beta of more than 2.0. AMAT has the highest beta of ~2.6 whereas KLA-Tencor (KLAC) and Lam Research (LRCX) have betas of ~2.3 and ~2.2, respectively. Beta is a measure of volatility in which a reading greater than 1.0 indicates high volatility.

AMAT’s stock is on an upward track, but what is the intensity of its growth? Technical indicators help us understand the intensity of stock price movement in the short and long term.

In Which Direction Is AMAT’s Short-Term Stock Price Momentum Skewed?

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Moving average

In technical analysis, short-term and long-term MAs (moving averages) play a key role. When the short-term MA is higher than the long-term MA, it indicates an upward trend and creates a buy signal. If the stock price is above the short-term MA, it indicates that the stock is still in the uptrend and creates a buy signal. However, if the stock price dips below the long-term MA, it indicates a downward trend and creates a sell signal.

AMAT’s 50-day MA of $45 is higher than its 100-day MA of $43, which shows that the stock is in the uptrend, creating a buy signal. However, the current stock price of around $44 broke the short-term MA and is nearing the long-term MA, creating selling pressure in the short term. If the stock price falls below $43, it would trigger a sell signal.

LRCX’s current stock price of above $155 is around its 50-day MA of $155, maintaining a buy signal. On the other hand, KLAC’s current stock price of above $91 has already broken its 100-day MA of $98, triggering a sell signal.

RSI

The RSI (relative strength index) is a technical indicator that measures the intensity of investor sentiment. The RSI is measured on a scale of 0–100, with a reading lower than 30 indicating that the stock is oversold and a reading greater than 70 indicating that the stock is overbought.

On August 7, 2017, AMAT had an RSI of 34, indicating that the stock is close to being undersold. KLAC stock has a low RSI of 32 whereas LRCX stock has a stronger RSI of 45.

The above technical indicators show that AMAT’s stock price is seeing a bearish trend in the short term, pushing the stock to the oversold band. When a stock is oversold, the probability of growth increases.

The technical indicators state that AMAT’s declining stock price has made the stock cheap and a good buy for those who are optimistic about its growth potential. KLAC is experiencing a similar scenario. On the other hand, short-term stock price momentum remains strong for LRCX.

In the final part of this series, we’ll see whether the stock price justifies AMAT’s fundamental valuation.

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