Back in the latter part of August, yours truly here penned some less-than-optimistic thoughts about Advanced Micro Devices, Inc. (NASDAQ:AMD). The call as more about bearish pressure on the AMD stock price rather than the company itself and was only a short-term call.
But, in that some investors/traders can have a tough time distinguishing between the two, the premise was met with some, shall we call it colorful, resistance from fans of AMD.
Well, here we are a little more than three months later, and AMD stock is down nearly 20% in the meantime. I don’t bring the matter up again to gloat, however. I’m only revisiting the look to say while the first bearish leg looks complete, we’re now knocking on the door of another leg lower.
No look at Advanced Micro Devices would be complete without adding in the key context that it’s in the midst of a turnaround story.
For years it lead GPU rival NVIDIA Corporation (NASDAQ:NVDA) widen its lead in terms of market share and, though it was something of a developmental partner with Intel Corporation (NASDAQ:INTC) in recent years, that relationship has been strained of late.
Indeed, Intel is now wading into graphics cards waters on its own, hiring a former AMD executive to head up the effort. The last thing Advanced Micro Devices needs now is another competitor.
Giving credit where it’s due, Advanced Micro Devices CEO Lisa Su has done an outstanding job of restoring the company’s competitiveness. The new Ryzen CPU and the new Vega GPU were more competitive than anything AMD’s made in a long, long time.
Indeed, it was the then-impending launch of those two products that drove AMD stock from 2016’s low of less than $2.00 to its mid-2017 peak of $15.85. The move was, however, more of an emotionally driven one than a fundamentally-driven one.
It works, but investor sentiment can and does turn on a dime, setting the stage for dangerous and often unexpected reversals. The slide from AMD stock since its July peak is evidence of that reality. Fast forward to today, and, as much as many might want to hope the worst for the stock is in the past, it may not be. Take a look.
For the better part of November it looked as if AMD shares were going to be able to regroup at a support line (light blue) that extends all the way back to early 2017, tagging all the key lows seen in the meantime. That floor cracked earlier this month though.
There’s still a smidgen of technical support left at $9.92 (yellow, dashed), where AMD stock found a floor in April. Shares dipped below that level briefly on Tuesday but managed to snap back above it. It’s not been a decisive reversal effort though.
The bears are still holding Advanced Micro Devices shares close to the edge of that technical cliff. One more bad day could do the trick, starting the next wave of selling.
With that as the backdrop, note that the volume undertow has been more bearish than bullish. The Chaikin line (which is, broadly, a volume-weighted momentum indicator) has been in negative territory since late October and continues to press lower. There’s also another overhang: the market itself is ripe for a pullback.
Put it all together, and what you’re fighting is an uphill battle. Any investor looking to buy into AMD stock on this dip may want to think long and hard about the risks of doing so.
It’s worth reiterating something I’ve explained a few times in recent months about Advanced Micro Devices. That is, this is a story stock, driven more by headline-psychology than actual results and prospects. There is no “investing” in such a stock. It’s all speculation.
That’s fine, but to be clear remember that this trading pendulum wings in both directions, widely. It looks like it’s already swinging in a bearish direction. But, if the last bastion of support around $9.92 fails to keep the stock propped up, things could get real interesting real fast and in a bearish way.
Welcome to the market.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.