Potential Rebound for LRCX, Lam Research, Following Its Downgrade to Sell Rating
Heard 'bout that struggling stock, Lam Research (LRCX)? Despite outperforming many innovators this year, it's down 18% over the past 52 weeks, and its technical performance ain't much better with a 64% Sell rating. But fear not, better days might be on the horizon.
With bears and bulls going at it tooth and nail for the past 10 weeks, creating a 5-5 sequence - five weeks of upside followed by five weeks of downside - there's a glimmer of hope. Whenever this pattern shows up, the long-side success ratio surges to 61.9% for the following week! Over the past year, there were only five such sequences with a net negative trajectory, making it quite rare.
Typically, when a stock's dominated by the bears, the bulls quickly respond. But, during the past year, that didn't happen with LRCX. This could mean lingering demand, setting the stage for a sentiment shift. Indeed, LRCX stock has gained 5% over the last week and almost 14% over the past month. With the bulls rallying, Lam Research might just be heating up.
If everything falls into place, LRCX could be trading around $77 by May 9, with a potential closing price of $79.47 by the end of the month. Keep an eye on this puppy!
Navigating the Choppy Waters of LRCX Stock
The derivatives game can be a tricky mistress. Predicting future prices ain't straightforward, nobody's steering clear of non-linearity and open systems. Random events can jump in and wreck your predictions in seconds. But, don't sweat it - a Premier subscription on our website can help tilt the odds in your favor.
One of the key features to familiarize yourself with is the Gamma Exposure screen. In a nutshell, gamma exposure tells you how much your options' delta exposure will change as the underlying stock price moves. The easier way to understand it? Gamma's essentially the option market's current - some setups will either boost or hinder your trade as the stock dances.
Low gamma exposure means things are steady - your position's direction and speed will shift gently. High gamma exposure issues a heads up - small movements in the stock price can whip up big shifts in dealer hedging, creating a whirlpool that drags prices in a specific direction. Find yourself on the right side, and you'll reap the rewards!
Given the situation, the options chain expiring May 30 is interesting. Up to the $75 strike price, the current's ain't too fierce. From $75 to $80, though, gamma picks up, creating strong currents that could potentially provide a powerful tailwind.
The Big Picture
LRCX's been printing bearishly dominated sequences, which ain't the norm for this dog. I reckon a brisk rise above the $79 level over the next four weeks is on the cards. That's why I'm keen on the 76/79 bull call spread expiring May 30.
This move involves buying the $76 call while simultaneously selling the $79 call, for a net debit paid of $139. If LRCX rises through the short strike price of $79 by expiration, the max reward balloons to $161, a payout of over 116%!
With gamma exposure low up until $75, the ride could get exciting once LRCX breaks that barrier and enters the zone from $75 to $80, where strong currents accelerate things. With a high-probability setup like this one, keep LRCX on your watchlist throughout the month!
Footnotes:[1] https://stockcharts.com/h-sc/ui?s=LRCX&p=Daily&range=1Y[4] https://www.tradingview.com/chart/LRCX-USD/slv3k7ba-LRCX-Daily-Chart-Analysis-for-Trading-Stock-on-25-Apr-2023/
Let's hope that next 5-5 sequence brings a bit of luck and profit to you and your portfolio!
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. This article is for informational purposes only; you should not construe it as investment advice. Always do your due diligence before making investment decisions.
- The options chain expiring May 30, with the $76/79 bull call spread, is an interesting prospect, given LRCX's current trends.
- With low gamma exposure up until $75, the ride could become exciting once LRCX breaks that barrier and enters the zone from $75 to $80, where strong currents accelerate its movement.
- If LRCX rises through the short strike price of $79 by expiration, the potential reward from the 76/79 bull call spread could balloon to $161, a payout of over 116%.
- Investing in technology stocks like LRCX requires careful analysis of factors such as technical performance, sentiment, and market trends to build a well-rounded investment strategy.
