False Upside Breakout for Applied Materials?

 | Mar 13, 2018 | 3:37 PM EDT
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Applied Materials (AMAT) made an upside breakout recently but prices are retreating today. This pullback and some divergences are suggesting that the breakout may have been false -- something that does happen from time to time. Let's review the latest charts and indicators to try, if possible, not to be "whipsawed."

In this daily bar chart of AMAT, below, we can see that prices have been unable to close above $60 for several months. Prices finally closed above $60 the other day but volume did not expand. With pretty much any or should I say all breakouts chartists and technical analysts like to see volume confirm the move. If you have trouble reading the volume histogram below the price chart the daily On-Balance-Volume (OBV) line has been flat and did not move up to confirm the price breakout. In the lower panel is the slow stochastic indicator. This indicator is in overbought territory above 80 and is making a lower high when prices make a higher high - a bearish divergence.

In this weekly bar chart of AMAT, below, we can see two more bearish divergences. Prices are above the rising 40-week moving average line and we can see that weekly volume has not expanded with the new highs. The weekly OBV line is not made a new high with prices and the 12-week momentum study in the lower panel shows a lower high from November to March even though prices make higher highs.

In this Point and Figure chart of AMAT we can see a double top breakout at $61.03 and an upside price target but prices quickly turned to a down column of O's. A decline below $57 could start to weaken the picture.

Bottom line -- for better or worse I like to see volume confirm breakouts and when that doesn't happen I rethink my position. Tomorrow is another day but right now I am questioning the "breakout."

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