Can Applied Materials Break Out?

With shares of Applied Materials (NASDAQ:AMAT) trading around $14, is AMAT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Applied Materials provides manufacturing equipment, services, and software to the global semiconductor, flat panel display, solar PV and related industries. Applied’s customers include manufacturers of semiconductor wafers and chips, flat panel LCD displays, solar PV cells and modules, and other electronic devices. These customers may use what they manufacture in their own end products or sell the items to other companies for use in advanced electronic components. Applied operates in four segments: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. As semiconductor, flat panel, and solar technology sees consistent improvements, companies like Applied Materials will innovate and provide highly demanded products and services.

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T = Technicals on the Stock Chart are Mixed

Applied Materials stock has seen a decline over the last several years. However, it is seeing a strong pop and looks to be headed towards a critical downtrend line where a solid break above would be very positive for the stock. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Applied Materials is trading above its rising key averages which signal neutral to bullish price action in the near-term.

AMAT

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Applied Materials options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Applied Materials Options

24.82%

36%

37%

What does this mean? This means that investors or traders are buying a good amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.