Applied Materials Follows Intel Down

03/25/04 09:56:07 AM

by Arthur Hill

The recent support break in Applied Materials (AMAT) confirms a bearish reversal as well as widespread weakness within the group.

Security: AMAT
Position: Sell

Figure 1: Daily chart of AMAT.

First it was Novellus (NVLS) with a sharp decline in January. Then, Intel (INTC) broke support in early March to confirm a double top (March 4, Traders.com article "Intel Turns Bearish"). Now, Applied Materials (AMAT) recently broke descending triangle support to confirm a bearish reversal.

Figure 2: Daily chart of NVLS.

Figure 3: Daily chart of INTC.

In spite of the support breaks in NVLS and INTC, the Semiconductor HLDRS (SMH) were holding support at 38.5. However, SMH was not able to withstand weakness from the behemoth of semi-conductor equipment (AMAT) and finally broke support. This bodes ill for both the group and the Nasdaq.

Figure 4: Daily chart of SMH.

Graphic provided by: MetaStock.

The confirmed bearish reversal pattern in Applied Materials (AMAT) is a descending triangle. These can form as bearish continuation patterns, but can also mark reversals. The lower highs (red arrows) show selling pressure at lower and lower prices. Buyers were not strong enough to push prices above the prior high. The equal lows (green arrows) show the last stand for demand. Buyers were able to keep prices from breaking below 21 from December to February, but selling pressure finally won out with a support break at 21. The bull's back has been broken.

Based on traditional technical analysis, the projected decline would be to around 16. The width of the pattern is subtracted from the support break for a target. Broken support at 21 now becomes the first line of resistance. Actually, a more realistic level would be 22, which is based on the late February/early March consolidation (gray oval). As long as resistance at 22 holds on a closing basis, the trend is firmly bearish and lower prices should be expected for the stock, the group and the Nasdaq.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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