Conditions on the price chart don’t look good for Advanced Micro Devices, Inc. (NASDAQ:AMD) near-term. But for investors willing to buy smartly, a butterfly spread on AMD stock is a multipurpose strategy to consider. Let me explain.
Since I last wrote about AMD, the stock has done a little of this, a little of that and a bit more of each on the price chart. In fact, the zig-zagging action puts shares, for all intents and purposes, right where I left them.
That’s the good news, as well as the fact a proffered bullish strategy on Advanced Micro Devices has retained the bulk of its value. But in our opinion, that’s also as good as it gets in the short term for AMD stock.
Bottom line, I’m still bullish on longer-term AMD’s prospects. Nevertheless, in respecting the changing landscape of the market and price action, I’m also willing to acknowledge Advanced Micro is close to having a big problem on its hands in the coming days and weeks ahead.
AMD Stock Daily Chart
Historically, buying on price weakness in an otherwise good company is a sound way to build massive profits over time. I discussed that last month. I also posed the question of whether that could be the case for AMD stock. I believe the potential is certainly there, but it’s increasingly apparent near-term pain for bullish investors is growing.
Over the last few weeks, shares of Advanced Micro Devices have gone from an oversold position that has failed to improve its position for bulls. In fact, while AMD stock price is virtually unchanged for the period, the volatility has manifested itself into a bearish flag set against the 50-day simple moving average.
With two rally attempts unable to break above the well-watched institutional resistance line and the flag pattern following a larger channel breakdown from the annotated “#3” July intermediate high; the action in AMD stock doesn’t look good shorter-term for shareholders.
A breakdown of the bear flag is backed by a bearish stochastics signal. If it occurs, this sets the stage for a move down towards a test of the May low and 38% retracement level near $10 a share in Advanced Micro Devices.