Applied Materials, Inc. Eases Back Off Recent Highs - A Pause That Refreshes?

Applied Materials, Inc. AMAT stock has been pulling back gently over the last several sessions, possibly setting up for a nice long-side entry for those bullish of the stock.

Pullbacks like this, according to the technical crowd, are a welcome and necessary evil to maintain a healthy long-term chart pattern. How far will Applied Materials pull back before resuming it previously winning ways?

What The Bulls See

• A stock positioned to benefit greatly from the explosion in the mobile computing and mobile commerce space.
• A reasonably valued company, especially compared to some of its peers -- price-to-sales ratio just over three (with five or higher being expended); price-to-book just over three (right at "fair value" and price-to-earnings around 20 based on 2015 estimates, comparing favorably to the 28 percent estimated EPS growth for next year
• A strong balance sheet; current ratio of 2.41 and a debt-to-equity ratio of only 25 percent.
• A great annual levered free cash flow of over $1.16 billion.
• A company whose stock appears to be pulling back mildly in an overall uptrend.

What The Bears See

• A stock that is severely long-term overbought on a technical basis and that should pull back to the upper teens.
• Fundamentally, the normal concerns pop up regarding a crowded semiconductor space, but those are old arguments.

The Technical Take

Technicians view the current pullback in Applied Materials as being a mild correction in a bull market. They are likely to hold onto that sentiment unless and until Applied Materials breaks down below the long-term uptrend line at $20. Before $20 is even approached, however, Applied Materials has support at $21.90, $21.15 and $20.54. Any of those levels could act as a floor for the stock at this point.

As long as the uptrend line is not violated, technicians warn that shorting Applied Materials shares is a relatively low percentage play. If support holds up at one of the levels mentioned, the next upside target for Applied Materials will be the Fibonacci price projection at $24.29.

Applied Materials still appears to be headed to the Fibonacci-generated target at $24.29 (from $22.09 currently) before it will likely pullback more substantially, likely along with the broader market.