Applied Materials (AMAT) drops 5.52% as bearish candlestick and moving average divergence drive extended downtrend.

Candlestick Theory

Applied Materials (AMAT) closed the most recent session at $211.56, down 5.52%, forming a bearish candlestick pattern with a long lower shadow and a narrow upper wick. This suggests aggressive selling pressure following a prior consolidation phase. Key support levels appear to form around $211.27 (a recent low) and $204.74 (a prior rebound point), while resistance is likely near $226.49 (a recent high). A breakdown below $211.27 could target the next support at $203.61, reflecting a potential continuation of the downtrend.

Moving Average Theory

Short-term (50-day) and long-term (200-day) moving averages diverge, with the 50-day MA currently below the 200-day MA, indicating a bearish bias. The 100-day MA at ~$200.50 may act as a critical psychological level; a close below this could confirm a deeper bearish trend. The 20-day MA at ~$215.50, however, remains above the current price, suggesting intermediate-term weakness but not yet a full breakdown. Confluence between the 50-day and 200-day MAs is unlikely in the near term, with the 50-day MA trending downward.

MACD & KDJ Indicators

The MACD histogram has contracted into negative territory, with the signal line crossing below the MACD line—a bearish divergence. This aligns with the KDJ indicator, which shows the J-line (fast stochastic) dipping below the D-line (slow stochastic), suggesting oversold conditions. However, the RSI (discussed later) remains in oversold territory, creating a potential divergence that may hint at a short-term rebound. The KDJ’s stochastic crossover at ~15-20 levels suggests a possible bounce, but confirmation is needed above $215.50.

Bollinger Bands

Volatility has expanded recently, with the bands widening to ~$13.50 width, indicating increased uncertainty. The price closed near the lower band, reinforcing oversold conditions. A retest of the lower band could trigger a mean reversion trade, but sustained breakouts below the band would signal heightened bearish momentum. The middle band at ~$217.00 acts as dynamic resistance; a failure to hold this level could accelerate the downtrend.

Volume-Price Relationship

Trading volume spiked to 10.5 million shares on the recent 5.52% decline, validating the bearish move. However, volume has since tapered, suggesting waning conviction in the short-term downtrend. A surge in volume during a potential rebound above $215.50 would strengthen the case for a reversal, while weak volume could indicate a false recovery.

Relative Strength Index (RSI)

The 14-day RSI stands at ~28, confirming oversold conditions. Historically, RSI levels below 30 have acted as a buying opportunity for AMAT, but caution is warranted due to the stock’s recent volatility. A close above $217.00 could push RSI above 35, signaling a potential short-term rebound. However, RSI divergences (e.g., higher lows in price with lower highs in RSI) suggest underlying weakness, increasing the risk of a false recovery.

Fibonacci Retracement

Fibonacci levels derived from the recent high ($226.49) and low ($203.61) highlight key psychological thresholds. The 38.2% retracement level at $215.05 and 50% level at $215.05 align with the 20-day MA, making these critical areas to watch. A breakdown below the 61.8% level at $211.27 would validate a deeper correction toward $203.61.

Backtest Hypothesis

The backtest strategy, which employs RSI overbought/oversold signals for AMAT from 2022 to 2025, underperformed the benchmark with a total return of 5.58% versus the benchmark’s 37.69%. This stark underperformance (-32.12% excess return) aligns with the stock’s volatile nature and sector-specific risks, such as U.S.-China trade tensions and cyclical semiconductor demand. The strategy’s low Sharpe Ratio (0.03) and high volatility (43.14%) suggest poor risk-adjusted returns, likely due to frequent false signals during periods of extended trends. For example, RSI’s oversold readings in late 2022 coincided with AMAT’s earnings-driven rally, but the strategy failed to capture sustained momentum. A revised approach integrating Fibonacci retracements and moving average crossovers might better align with AMAT’s structural trends, particularly in an AI-driven semiconductor sector.