Advanced Micro Devices, Inc. (NASDAQ:AMD) is at a critical juncture. Shares of the volatile yet high-flying semiconductor manufacturer have retreated sharply from their post-earnings highs. While the selloff may have been a bit too overdone, AMD stock has crashed through one key support level already, and may be on the verge of breaching another that could end the share’s meteoric run.
Click to Enlarge That level is AMD’s 200-day moving average.
The shares have enjoyed stalwart support at this key trendline since breaking above it in March 2016. The 200-day even provided a floor back in May.
Shares are once again testing this technical support, and finished Tuesday’s session a hair above it. It was a close call for the bulls, as AMD stock also is hovering just above technical support at $12 after crashing through the lower rail of an uptrending channel earlier this month.
The pullback to the lower rail of this channel, near $13.25, should have been a buy signal. But the breakdown in the shares emboldened Advanced Micro bears, leading to additional selling pressure, resulting in the current technical situation.
If we’re basing AMD’s value on the potential of its semiconductor business, I believe now is an excellent buying opportunity. The company is in rare form, taking market share away from Intel Corporation (NASDAQ:INTC) in the desktop and server markets, as well as challenging Nvidia Corporation (NASDAQ:NVDA) in the GPU, AI and virtual reality markets.
There is also considerable pessimism lingering in this stock.
Only 11 of the 32 analysts following AMD rate it a “buy” or better, and short interest accounts for more than 17.6% of the stock’s total float. These bearish bets represent potential sideline money that could flow into Advanced Micro Devices following any positive developments.
The problem, however, remains technical, and could be decided by broad-market concerns. Barring continued market pressure (e.g., President Trump, North Korea, etc.), AMD stock should rebound nicely from its current perch. But a breach of trendline support could send shares down sharply once again, maybe even into bear market territory.
AMD options traders appear to be betting on return to form for the shares. Currently, the September put/call open interest ratio rests at 0.57, with calls on the verge of doubling puts among front-month options. This ratio has edged higher over the past month, however, corresponding with AMD’s post-earnings decline.
Overall, September implieds are looking for a nearly 8% move heading into expiration. That places the upper bound at $13 and the lower bound at $11. Dual support just below the shares should keep AMD from trading down at $11, while overhead technical resistance might come into play near $13.
2 Trades for AMD Stock
Call Spread: For those traders looking to bank on a rebound in Advanced Micro Devices, a Sep $12.50/$13 bull call spread offers a solid return.
At last check, this spread was offered at 14 cents, or $14 per pair of contracts. Breakeven lies at $12.64, while a maximum profit of 36 cents, or $36 per pair of contracts — about a 157% return — is possible if AMD closes at or above $13 when September options expire.
Put Spread: With uncertainty in the air on Wall Street, there is the very real possibility that AMD could breach support here. Those interested in banking on such a breakdown might consider a Sep $11/$12 bear put spread.
At last check, this spread was offered at 25 cents, or $25 per pair of contracts. Breakeven lies at $11.75, while a maximum profit of 75 cents, or $75 per pair of contracts — approximately a 200% return — is possible if AMD stock closes at or below $11 when September options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
