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What AMAT will say...


AMAT reports tonight. Let's keep the real-time complexity experiment going by looking at the chart and determining if, like our efforts with CSCO, ERICY, DELL, and Agilent, we can limn both what the numbers are likely to be from this semiconductor company as well as how the Street will react to them.

Again, to reiterate, our version of the complexity theory of asset pricing posits that stock prices are a function of both rational and irrational investor behaviors; that fundamentals play at best a minor and coincident role in the price discovery mechanism. And since investors are (partly or wholly) irrational in this theory, it further argues that the price of the security itself - via the scale invariant patterns it creates along with the Fibonacci relationships that one can investigate from those scale invariant patterns - is the best determinant for the probability for future price changes as well as the best determinant of what the reported fundamentals both are in actuality and how they will be received. Note too that we have no edge whatsoever on AMAT fundamentally. It is not a name I follow closely; I don't even know what the expectations are.

With that, let's look at AMAT, which, like CSCO, I think is actually bullish longer term: it may - may - have completed a full 5 wave decline from the 2003 peaks to its Jan 24th 2005 lows and thus could bounce in a choppy fashion to $19-21 area over the next few months. That said, we are only concerning ourselves with the short term given the experiment we are trying to undertake. And on that scale (the hourly chart, last few weeks), AMAT is both diverged at today's peak as well as what looks like a small "5" waves up from the lows on Jan 24th. Add in some DeMark hourly trend exhaustion indicators and AMAT looks very ripe for a decline to at least lower Fibonacci support in the $16-16.65 area (a 5% to 9% decline from current prices).

What this implies about the fundamentals, at least the initial first few days interpretation of them, is that they will be negative. The probability that the stock falls meaningfully (again 5-9%) is high based on the price pattern of the security alone. And because most investors (and media pundits) believe there is a direct, incontrovertible correlation between stock prices and fundamental information, it is likely that the reception of AMAT's news will be considered "negative" in a simple effort to justify price action that, according to the stock price itself, is already highly probable. All of this is another effort to make the case that investigating the fundamentals alone is at best an incomplete exercise and, if you fully embrace the idea of the stock market as a complex system, fundamentals are utterly meaningless.

Stay tuned.
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