Applied Materials Surges 6.53% on Four-Day 13.09% Rally as Technical Indicators Signal Breakout

Applied Materials (AMAT) has surged 6.53% on the most recent session, extending a four-day rally with a cumulative gain of 13.09%. This momentum coincides with the price surpassing critical resistance levels identified in the 174.55–176.55 range, suggesting a potential breakout from a consolidation phase. The volume profile shows elevated trading activity, particularly on the recent upleg, which validates the strength of the move.

Candlestick Theory

The recent price action features a bullish engulfing pattern on September 18, where the body of the candle fully engulfs the previous session’s range, signaling a shift in momentum. Additionally, a hammer candle on September 15 (closing at 170.93 after a low of 168.53) suggests a rejection of lower prices. Key support levels are evident at 161.75 (a prior low from late August) and 156.25 (a mid-August trough), while resistance is clustered near 194.81 (a July peak).

Moving Average Theory

The 50-day moving average (currently around 175.00) is above both the 100-day (170.00) and 200-day (165.00) averages, confirming a bullish trend. The price remains well above all three, indicating strong multi-timeframe alignment. However, the 50-day MA is approaching the 180.00 level, where the 100-day MA may converge, potentially creating a dynamic support zone if the rally consolidates.

MACD & KDJ Indicators

The MACD histogram has turned positive, with the line crossing above the signal line, reinforcing the bullish momentum. The KDJ oscillator (K at 85, D at 78) suggests overbought conditions, with the K line nearing the 80 threshold—a potential warning of near-term exhaustion. This divergence between the MACD’s strength and the KDJ’s overbought signal highlights a risk of a pullback, though the overall trend remains intact.

Bollinger Bands

Volatility has expanded significantly, with the bands widening from a 10-period contraction in early September. The price currently sits near the upper band (191.55–189.76 range), indicating a high-volatility environment. A break above the upper band may trigger further gains, but a retest of the lower band (173.83–170.93) could act as a near-term support zone.

Volume-Price Relationship

Trading volume has surged during the recent rally, particularly on September 18, with a record 15.47 million shares traded. This aligns with the price surge, validating the move. However, if volume begins to taper while the price continues higher, it could signal weakening conviction. Conversely, a surge in volume during a pullback would suggest strong buying interest at lower levels.

Relative Strength Index (RSI)

The 14-period RSI stands at 72, entering overbought territory. While this does not guarantee a reversal, it suggests a potential correction is more probable than not. Historical data shows that AMAT often experiences pullbacks of 5–8% after RSI exceeds 70, with support levels at 65 and 60 acting as key thresholds to monitor.

Fibonacci Retracement

Drawing retracement levels between the August 15 low (161.75) and the July 16 high (194.81) reveals critical confluence points. The 61.8% retracement level at 183.07 aligns with the 100-day MA, while the 78.6% level at 177.50 coincides with a prior consolidation area. A break above the 194.81 high would target the 161.8% extension at 207.86, though this requires sustained momentum.

Backtest Hypothesis

A backtested strategy combining Bullish Engulfing, Hammer, and RSI overbought signals resulted in a -11.92% return over 10 days, significantly underperforming the benchmark’s 40.54% gain. This outcome underscores the limitations of relying solely on overbought RSI signals in a strong trending environment. The strategy’s maximum drawdown of 0.00% and negative Sharpe ratio (-0.15) suggest poor risk-adjusted returns, likely due to premature exits during a continuation phase. A refined approach might incorporate additional filters, such as moving average crossovers or volume confirmation, to better align with the prevailing trend.