Don't Ignore This Chart!

AMAT's Candle Suggests A Reversal Is Imminent

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Applied Materials (AMAT) printed a shooting star candlestick on Thursday, with a long-term negative divergence in play on both its daily and weekly charts, signs of slowing momentum to the upside from both an intermediate- and long-term perspective.  AMAT, just a few days ago, printed a reversing dark cloud cover candle, but still managed to clear that high with today's intraday high.  But today's reversal and overall lighter volume of late suggests the near-term is dicey at best.  Check out the chart:

There have been three separate negative divergences on the AMAT chart over the past six months.  The first did not work, but I throw out technical patterns when earnings are coming out and that was the reason AMAT shot higher after that first negative divergence printed.  Volume was massive on the gap higher and the negative divergence was eliminated.  The second negative divergence worked as AMAT retreated 10% or so to unwind its momentum oscillators.

Will this third negative divergence work?  Well, earnings won't be out again for AMAT until mid-February so I'd expect slowing momentum to be a concern for the next few weeks.  If we do see AMAT print higher prices, check the volume.  Unless the volume is well above average volume, I wouldn't trust the advance.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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