By Nigam Arora
Nobody likes the Sword of Damocles hanging over them — certainly not if you are China, the second-largest economy in the world.
Oil used to be the lifeblood of the economy, but no more. The lifeblood of the modern economy is semiconductors. (Please see “Investors are misplacing threats to the U.S. stock market.”)
The U.S. dominates the semiconductor industry, and therefore China is highly dependent on U.S. companies. During the trade war, President Trump effectively used the U.S.’s position in semiconductors as a Sword of Damocles. It is natural for China to try to get out of this situation.
For investors, it is all about making observations, getting ahead of Wall Street and profiting. Which company’s stock will benefit the most as China attempts to reduce the U.S.’s dominance in semiconductors? Let’s explore with the help of a chart.
Note the following:
• Applied Materials is a supplier of equipment for semiconductor manufacturing based in Santa Clara, Calif.
• In its attempt to reduce dependence on the U.S. in semiconductors, China is likely to ramp up its semiconductor manufacturing and design capabilities.
• There is a potential for Applied Materials sales in China to significantly increase over the coming years.
• Applied Materials is in The Arora Report’s model portfolio, bought at $16. It is trading at $62.30 as of this writing.
• The chart shows that Applied Materials stock has been in a steady uptrend.
• The chart shows acceleration in the uptrend.
• The chart shows resistance overhead.
• The pattern that the price is tracing in Applied Materials stock, in the past, has shown a high probability of a breakout above the resistance line shown on the chart.
• The relative strength index (RSI), shown on the chart, indicates that there is room to run up.