ON Topic: Getting The Big Picture - Weekly Moving Averages.
Before investing in any stock, I always take a step back to look at the big picture as given from a 2-5 year weekly chart. While one can make money in the short term even when the general direction of a stock is down, I like to have the extra comfort of having the macro direction in my favor as well.
AMAT weekly 2 year chart - MACD, 50 and 100 day moving averages, and price channels included:
chart4.bigcharts.com:80/chart?time=9&freq=2&uf=128&lf=4&type=4&style=3&size=3&compidx=aaaaa&symb=amat&comp=&maval=10&state=0&ma=3&r=chart&onbad=badsymbol&country=us&sid=614&sec=c&xyz=88174703&s=7506
The main focus here is on the moving averages (ma). During the move up from Sept 96 to Sept 97, AMAT always stayed above the 100 day ma, aka the 20 week ma. When making impressive gains, it always stayed above the 50 day ma.
AMAT decisively broke both ma's in Oct 97, ushering in the current bear market for itself. This spring the stock attempted to stay above both lines but failed to do so recently.
In this case, using the price channels in conjunction with the moving averages would give buy/sell signals. The price channel shows areas of support on the down side, and resistance on the up side, with flat horizontal lines. Although AMAT had gotten above the 50 and 100 day ma's, it never was able to break the resistance line at $40, which would have provided a BUY signal.
Looking at the left side of the chart, each break of the flat line resistance area resulted in a move to a new price range. Buying on breakouts above these resistance areas is called "momentum buying", because you are buying a stock that has momentum in it's favor, in other words, going up.
While this is not a long term approach to investing, it is an intermediate term approach to trading for gains with a 4 to 12 week time frame in mind.
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