Added Applied Materials To Our Model Portfolio (Technical Analysis)

Summary:

• Applied Materials has been added to the Robo24MP Model Portfolio due to a strong SID Buy Signal.
• SeekingAlpha analysts have mixed ratings for AMAT, but the SA Quant rating gives it good grades for Profitability, Revisions, and Momentum.
• The chart shows AMAT experiencing a breakout and a pullback to test support, indicating a potential buying opportunity.

We just added Applied Materials (NASDAQ:AMAT) to our Robo24MP Model Portfolio because it has our proprietary SID Buy Signal which is required to get into this portfolio. With this Robo portfolio we delete stocks when they lose our SID Buy Signal and replace them with stocks that have a strong SID Buy Signal. This is a momentum portfolio with high turnover.

We use the Seeking Alpha analysts and SA Quant ratings to do our due diligence. The consensus SA analyst rating is a Hold. The most recent SA analyst rated it a Sell and the one before him rated it a Hold. Some 24 of 36 Wall St. analysts have a Buy. The SA Quant rating is also a Hold, but it gives AMAT good grades for Profitability, Revisions, and Momentum. That is why our SID score likes it.

The poor SA Quant ratings for both Valuation and Growth are usually a deadly combination. I don’t expect the Valuation to improve, but it is possible that Growth will improve. Bottom line, you may want to wait for our “buy on weakness” signals when price has a pullback to support lines shown on the chart below. That is what professional portfolio managers will do.

As you can see on the daily chart below, Demand, created by Wall St. and SA analysts, is taking the price higher based on good fundamentals because that is how they evaluate stocks. Our chart is reacting to fundamentals driving price and not causing them.

At the top of the chart is our proprietary SID Buy Signal and you can see as it improved from a Sell signal to a Hold signal and finally a Buy signal using both fundamental and technical factors. It is not unusual for growth stocks to be overvalued, and we think that the market expects growth to improve at AMAT.

You can see price breaking out to the upside after a long period of consolidation. This tells us that AMAT is expecting a new wave of growth after a long period of dormant price movement. You can see the price trend is up.

However, notice that price is pulling back to test support. Chaikin Money Flow is dropping. The MACD signal is threatening a crossover Sell Signal. The vertical, green line, technical Buy Signal was put in place at much lower prices. This move up is ready for a pullback to test support. At the bottom of the chart you can see Demand dropping and Supply increasing.

Conclusion

We think the pullback is a normal test of support. If our SID Buy Signal remains unchanged on the pullback, it will trigger our “buy on weakness” signals that will appear in the Tmg and Cfrm columns of our daily reports to subscribers. This is what we expect. You can see the strong, uptrend in Relative Strength that identifies AMAT as an Outperformer for portfolio managers. This signal is now dropping to test the uptrend. Portfolio managers will buy on weakness because that is their buy discipline for stocks outperforming the Index that also have good fundamentals.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in AMAT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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