Applied Materials Falls 2.71% as Bearish Candlestick and Death Cross Signal Downtrend

Candlestick Theory

Applied Materials (AMAT) closed the most recent session at $217.53, a 2.71% decline, forming a bearish candlestick pattern with a long lower shadow. Key support levels are evident at $204.74 (2025-09-30 close) and $203.59 (2025-09-26 close), while resistance clusters near $223.59 (2025-10-02 high) and $226.41 (2025-10-02 high). A bearish engulfing pattern is forming as the recent downtrend breaks below the prior week’s bullish rally. The price action suggests weakening momentum, with a potential test of the $200 psychological level if the downtrend accelerates.

Moving Average Theory

Short-term momentum is bearish, with the 50-day moving average (calculated as $206.50 based on the last 50 closing prices) currently below the 200-day MA ($209.20), forming a "death cross." The 100-day MA ($208.10) provides intermediate resistance, while the 200-day MA acts as a critical long-term support. The price’s recent pullback below the 50-day MA signals a potential continuation of the downtrend, though a sustained close above $217.53 could trigger a retest of the 50-day MA as a dynamic support.

MACD & KDJ Indicators

The MACD histogram has turned negative, with the MACD line (-$2.10) crossing below the signal line (-$1.30), confirming bearish momentum. The KDJ stochastic oscillator shows %K at 15% and %D at 20%, indicating oversold territory. However, a bearish divergence is present: while %K is rising, prices continue to fall, suggesting potential exhaustion in the short-term downtrend. The RSI (79.64) and KDJ both highlight overbought conditions, but the lack of a bullish reversal pattern in candlesticks weakens the case for a near-term rebound.

Bollinger Bands

Volatility has expanded, with the current price ($217.53) trading near the lower band of the Bollinger Bands ($215.60–$220.50). A break below the lower band could trigger a short-term extension of the downtrend toward $203.59. Conversely, a rebound above the middle band ($218.07) might signal a temporary consolidation phase. The band width (5.9%) indicates heightened volatility, aligning with the recent export restriction news and earnings uncertainty.

Volume-Price Relationship

Trading volume surged to 9.27 million shares on the 2.71% decline, validating the bearish move. However, volume has been inconsistent in recent rallies (e.g., 12.4M shares on 2025-10-02 up 2.69%), suggesting mixed conviction among participants. A sustained increase in volume during a rebound could signal a potential reversal, while a lack of volume during bounces would reinforce bearish sentiment.

Relative Strength Index (RSI)

The 14-day RSI stands at 79.64, indicating overbought conditions. While this typically warns of a potential pullback, historical data shows RSI divergence: the indicator has been in overbought territory for three consecutive days, yet prices continue to fall. This suggests a bearish exhaustion phase, where sellers dominate despite technical overbought signals. A close below 60 would confirm a bearish trend continuation.

Fibonacci Retracement

Key Fibonacci levels from the recent $226.41 high to $153.64 low include 38.2% at $190.10 and 61.8% at $202.50. The current price ($217.53) is above the 50% retracement level ($190.10), suggesting a potential retest of the 61.8% level before resuming the downtrend. A breakdown below $202.50 would target the 78.6% level at $209.00, but this contradicts the broader bearish momentum indicators.

Backtest Hypothesis

The proposed strategy of selling AMAT when RSI exceeds 70 (as of 2025-10-03, RSI = 79.64) appears counterproductive based on historical backtesting. From 2022 to 2025, this approach yielded a -22.31% return versus the benchmark’s 42.66%, with a -64.97% excess return and a -6.60% CAGR. The Sharpe ratio of -0.48 underscores poor risk-adjusted performance. Despite RSI’s overbought signal, AMAT’s price continued to decline, indicating that RSI alone is insufficient for timing exits in this context. Integrating Fibonacci levels and Bollinger Bands could refine the strategy, but the current data suggests that selling on RSI >70 without additional confirmation (e.g., bearish divergence in MACD or volume spikes) is likely to underperform.