Jim Cramer explained in his Real Money column "There's Good Risk and Bad Risk" that individual investors can still make money in the stock market without buying into the Reddit frenzy.
Cramer said that in volatile markets, it always pays to circle back to the fundamentals. This week, for example, we learned that there's a big shortage of semiconductors. That's great news for stocks like Lam Research (LRCX) and others.
The last time we reviewed the charts of LRCX was way back on May 7, when we wrote that, "LRCX is likely to trade sideways for the near-term but the longer-term view remains positive." LRCX did not resume its rally until June.
Let's check out the latest charts of LRCX.
In the updated daily bar chart of LRCX, below, we can see a correction in August/September before the current rally into January. Prices recently pulled back to test the rising 50-day moving average line. The 200-day moving average also has a positive slope.
The On-Balance-Volume (OBV) line has moved sideways in December and January as the shares made higher highs -- this is a bearish divergence and is a warning to longs. The 12-day price momentum study shows equal highs from November to January, which is another bearish divergence as prices made higher highs. Another heads up that the price action and the indicators are diverging.
In the weekly Japanese candlestick chart of LRCX, below, we can see a bearish candlestick top reversal pattern in January. Prices are above the rising 40-week moving average line but the weekly trading volume has been diminishing since March.
The OBV line has gone sideways the past year and has diverged from the price action. The Moving Average Convergence Divergence (MACD) oscillator has been narrowing in recent weeks and tells us that the trend strength has been weakening.
In this daily Point and Figure chart of LRCX, below, we can see a potential downside price target in the $390 area.
Bottom-line strategy: When you analyze an individual stock you should pay attention to the trend in the broader market to some degree. The charts of LRCX are showing weakness and bearish divergences despite the strength in the broader market most days. Longs need to be cautious in the weeks ahead -- a break of support around $475 will be bearish.