Applied Micro Circuits Corporation (NASDAQ: AMCC)

Applied Micro Circuits Corporation provides computing and connectivity solutions for next-generation data centers and service providers. The company’s products include the X-Gene ARM 64 bit Server on a Chip solution, along with the X-Weave family of connectivity products, for cloud/hyperscale data center and enterprise applications. Its X-Weave products address various segments, including 10, 40, and 100 Gbps solutions serving data center and service provider market opportunities. These connectivity products include devices for optical transport network equipment and physical layer devices that transmit and receive signals in a high speed serial format. Applied Micro Circuits Corporation was founded in 1979 and is headquartered in Sunnyvale, California with sales and engineering offices located throughout the world.

To review a current H&S pattern on Applied’s stock, please take a look at the 1-year chart of AMCC (Applied Micro Cirsuits Corporation) below with my added notations:

1-year chart of AMCC (Applied Micro Cirsuits Corporation)

AMCC had rallied from a low of $6.50 last April to a peak of $15 back in October. Over the last 7 months the stock had created a very important “neckline” of support at $10.50 (blue). Above the neckline you will notice the H&S pattern itself (green). Confirmation of the H&S occurred towards the end of January when AMCC broke its $10.50 “neckline”. So, the stock should be moving lower overall from here.

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The Tale of the Tape: AMCC confirmed a head & shoulders pattern. A short trade could be entered on any rallies up to or near the $10.50 area. A significant break back above $10.50 could negate the forecast for a move lower.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach