With semiconductors being a clear area of strength right now, our swing trading entry in AMAT stock has paid off. But could it turn into something more?
Swing Trading Example: AMAT Stock
Applied Materials (AMAT) is a current standout among semiconductor stocks. The clues were there earlier. AMAT stock had two brief punctures of its 21-day moving average line (1) but quickly came back. The second occurred after the Nasdaq composite lost its 50-day line and lagged the other major indexes. That relative strength vs. the Nasdaq composite wasn’t reflected in the relative strength line, which compares the stock to the S&P 500. Had the relative strength line used the Nasdaq as its benchmark, it would have told a more compelling story.
Following another touch of its 21-day line (2) on March 16, we put AMAT stock on SwingTrader (3). The gap-up broke above a downtrend line and it seemed to be an early mover in the group. We didn’t want to set the stop too tight and used a close below the March 15 low (2).
When AMAT stock closed below its 5-day moving average line, that would normally act as a sell signal (4). But given that it was meeting both the 10- and 21-day moving average lines, we gave it a chance to find support.
Support came the next day after it tested the lows early in the trading session but quickly rebounded (5). In the morning, we set an alert at the lows of the day, our line in the sand. But that level held and AMAT finished strong.
Joe Fahmy talked about semiconductor stocks as a special guest on IBD Live. Take a trial and view the archived footage.
Applied Materials Gets Stronger
From there, the strength in AMAT stock got even better. We took our first 0ne-third profit on March 24 after hitting our 5% profit goal (6). Though it didn’t close well that day, to its credit the relative strength line was at new highs. But was Applied Materials hitting resistance at former highs? With some profit locked in near those highs, we could give it some room.
After another visit to its 21-day line, the Nasdaq composite started to show new signs of life and AMAT stock jumped 7.5% in a single day (7). Even better, it refused to give up much of the gains in the next two days. When Applied Materials jumped again (8), we took our next third profit at more than 10%.
We’ve mentioned a number of past swing trades that could turn into position trades and AMAT stock seems to be another example. Friday’s action built on the gains, hitting 20% above our initial entry in just two weeks. With a lot of profit locked in, you could give this one more room to run even if it pulls back from here.
As a swing trade, however, we decided to take the profit on Friday. Comparing its distance above the moving averages to other short-term tops in AMAT’s history persuaded us to sell the final third into strength. We’ll discuss the details in our next SwingTrader Scorecard webinar on April 8. Check the SwingTrader homepage for details.
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