Keysight Technologies reported results that beat expectations, with EPS 8.75% above forecasts and revenue 3.89% above estimates. The share price rose about 20% in one day after the update.
The company also issued strong forward guidance and pointed to rising demand linked to AI data centres. It said its test systems are used to validate high-performance chips, high-speed networking and optical interconnects in AI clusters.
Since 2016, the share price had traded within a parallel channel and has now broken above the upper boundary at $257.34. The move marked a break from a structural range that has lasted for almost 10 years.
Technical indicators show the stock is stretched in the short term, with a Weekly RSI of 87.33. The report also flagged the risk of a pullback after a rapid rise.
A resistance level was noted near $313.09 on an upward trendline. A potential support retest level was identified at $257.34, which was previously the long-term ceiling.
This massive 20% surge in Keysight creates a complex scenario for us. The powerful AI narrative suggests a long-term uptrend, but the stock is now technically stretched thin. This sharp move requires a more strategic approach than simply buying the stock.
With a weekly RSI now at a staggering 87.33, history shows that pullbacks are highly probable in the coming weeks. We saw a similar pattern in NVIDIA during its 2023 ascent, where RSI readings above 85 consistently preceded brief 10-15% corrections before the next major rally. This makes buying short-term puts, perhaps with an April expiration, a tactical play against this over-enthusiasm.
For those of us who believe in the long-term AI story, the $257.34 breakout level is the key. Selling cash-secured puts with a strike price near this level could be an effective strategy. This allows us to either collect income while we wait or to acquire the stock at a much better price if a healthy correction occurs.
We must acknowledge that implied volatility has spiked after yesterday’s move, making new long options unusually expensive. Data from Cboe has shown that post-earnings IV crush can be as high as 50-70% in the days following a major announcement. Therefore, strategies that involve selling premium, such as covered calls against existing shares, are more attractive right now.
A more controlled way to stay bullish is through a debit spread, which limits both cost and risk. For instance, buying a May $290/$310 call spread targets the move toward the $313 resistance zone. This strategy allows for participation in further upside while protecting capital from the potential sharp drop we are expecting.
