Buy Alert: AMAT Poised to Trade Higher

Dear Reader,

For today’s Trade of the Day e-letter we will be looking at Applied Materials, Inc. stock symbol: AMAT.

AMAT provides manufacturing equipment, services and software to the semiconductor, display and related industries. With its diverse technology capabilities, Applied delivers products and services that improve device performance, yield and cost.

Now, below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for AMAT.

50-Day EMA and 100-Day EMA ‘Buy’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Buy AMAT Stock

As the chart shows, on December 6^th, the AMAT 50-Day EMA, crossed above the 100-Day EMA.

This crossover indicated the buying pressure for AMAT stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish trend.

Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play.

As long as the 50-Day EMA remains above the 100-Day EMA, the stock is more likely to keep trading at new highs and should be purchased.

Profit if AMAT is Up, Down or Flat

Now, since AMAT’s 50-Day EMA is trading above the 100-Day EMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for an AMAT call option spread.

For this option spread, the calculator analysis below reveals the cost of the spread is $330 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if AMAT is flat, up at all, or down -7.5% at expiration the spread will realize a 51.5% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 51.5% profit potential when the trade was identified*.

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Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

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Wishing You the Best in Investing Success,