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So close, yet so far

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While tonight's earnings from Intel (NASDAQ:INTC) $18.62 -2.71% loom large not only for Intel, what the company has to say about the future near-term also weighs in the balance for the semiconductor equipment sector.

You can't talk "semi-equipment" without mentioning Applied Materials (NASDAQ:AMAT) $18.86 -2.78% and understanding how big a trade at $21 could be for this stock's supply/demand chart. Today's action and past trading hints there's willing sellers just below the $21 level and AMAT bears that are "certain" that Intel (INTC) has little upside surprises hidden in its sleeve will certainly be shorting the stock into today's close, and following with a stop just above at $21.

Applied Materials Chart - $1 & $0.50 box

One might argue (as I have) that semiconductor equipment maker Applied Materials (NASDAQ:AMAT) is "dependent" on the good fortunes of chipmaker Intel (NASDAQ:INTC). As such, an Intel bull might look for some type of confirmation of bullishness from equipment maker AMAT where the market might "tip its hand" regarding tonight's earnings from INTC.

Obvious resistance is shown in the above chart of AMAT just below the $21 level. For rallies at the $20 level, but no trade at $21 will keep bears interested in shorting the stock. Unless of course those bears shorting "know" for certain what the prospects are for Intel in the months ahead. Current risk/reward looks to favor bears in AMAT as they follow bearish trades with a stop at $21 and target the longer-term bearish vertical count of $10.

Bears understand that risk is high in the semiconductor sector as the bullish % for this group (semiconductor) is "bull alert" at 17.1%. As it relates to AMAT, this is one of the stocks in the group that has yet to generate a "buy signal," which would currently take place at $21.

Technical action between Intel and Applied Materials does depict what we talked about back in late May, early June in that the chipmakers would be thought of as leaders and once a clearer picture of the future was mapped out and earnings begin to grow, then their budgets for new equipment in order to increase production to meet robust demand would come back into play.

While there are some technical signs that the above scenario may be starting to unfold, we've yet to see Applied Material's (AMAT) point and figure chart give any type of confirming "buy signal."

Jeff Bailey
Senior Market Technician
Option Investor

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