Applied Materials 2023 Earnings Beat but Stock Drops Post-UBS Downgrade, Shares Near $56

Applied Materials, Inc. (AMAT), a leading semiconductor equipment and software provider, reported stronger-than-expected earnings in November 2023. The company, which supplies chips for devices like smartphones, flat-panel TVs, and solar products, saw its stock hit an all-time intraday high of $63.07 on November 18. However, this peak was short-lived as UBS downgraded Applied Materials along with two other semiconductor equipment firms, citing anticipated weakening in wafer fabrication equipment utilization.

UBS shifted Applied Materials from neutral to sell, expressing caution about the sector's near-term growth. Despite this, the stock remains attractively valued with a price-to-earnings ratio of 20.44 and a dividend yield of 1.35%, according to Macrotrends. Impressively, Applied Materials has surpassed earnings per share estimates for 17 consecutive quarters, demonstrating consistent operational strength.

As of late November 2023, Applied Materials shares closed near $55.95, marking a 70.9% gain year-to-date and maintaining a robust bull market stance with prices nearly 94.3% above their December 26, 2022 low of $28.79. Following the UBS downgrade, the stock entered correction territory, trading roughly 11.3% below its November 18 peak, with a recent low of $55.43 on November 22, holding above its monthly support level at $55.69.

Technical analysis reveals a "golden cross" formation on April 4, 2023, when the 50-day moving average surpassed the 200-day moving average, signaling potential for higher prices. This bullish trend culminated in the November intraday high. Notably, key reversal patterns and proprietary value levels identified throughout 2023 provided strategic buying opportunities, including significant pivots at $38.81 and $55.47.

Weekly chart indicators suggest the stock remains in a positive yet overbought condition, trading above its five-week moving average of $54.95. The 200-week moving average, often considered a reversion point, stands at $40.37, highlighting the stock’s strong upward momentum since late 2018. Momentum indicators like the 12 x 3 x 3 weekly slow stochastic recently signaled an "inflating parabolic bubble" near the November high, preceding the current correction.

For investors, maintaining positions above the semiannual pivot of $55.47 could open the door to gains toward the weekly risky level of $62.57. Conversely, a decline below this pivot might test support near the 200-day moving average around $45.99.

Applied Materials’ value and risky levels are derived from an in-depth analysis of monthly, quarterly, semiannual, and annual closing prices over the past nine years, providing a framework to navigate price volatility. These levels serve as strategic entry and exit points, helping investors optimize timing by purchasing on dips to value levels and trimming exposure near risky levels.

The use of 12 x 3 x 3 weekly slow stochastic readings, refined through decades of backtesting since the 1987 market crash, offers reliable momentum insights. Readings above 80 suggest overbought conditions, while those above 90 often precede significant pullbacks, termed "inflating parabolic bubbles." Conversely, readings below 20 indicate oversold conditions, with levels under 10 considered "too cheap to ignore." This method aids in anticipating market turns and managing risk effectively.

Disclosure: The author holds no positions in Applied Materials or related stocks and does not plan to initiate any within the next 72 hours.

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