Leading stocks go through consolidation periods where weak hands forego their shares as impatience takes over. It’s never fun to watch the stock market break to new highs while your stock(s) consolidate and fail to gain ground. A trained technical eye, however, needs to recognize continuation patterns that form on these leaders, because they’ll likely lead again once their consolidation ends.
I believe that’s the case right now with Applied Materials (AMAT). AMAT has been one of the strongest semiconductor names ($DJUSSC) since breaking out in November 2020. Volume trends remain very strong, but impatient traders may be losing sight of the intermediate- to longer-term, instead looking for more instant gratification. Patience will likely pay off here, however, as AMAT is likely printing an inverse right shoulder in a bullish inverse head & shoulders continuation pattern:
Healthy, leading stocks need breathers from time to time and I believe AMAT is taking a breather right now. The inverse right shoulder could see AMAT drop a bit more, but it’s likely setting up a better reward-to-risk opportunity in the days and/or weeks ahead.
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Happy trading!
Tom Bowley, Chief Market Strategist, EarningsBeats.com