In theory, any investor discussion about the merits of owning Advanced Micro Devices, Inc. (NASDAQ:AMD) would focus on its fiscal prospects, which have a real impact on AMD stock.
Clearly the GPU-market-leading Nvidia Corporation (NASDAQ:NVDA) would factor in, as would the CPU-market-leading Intel Corporation (NASDAQ:INTC). AMD stock holders know all too well that Advanced Micro Devices competes and struggles with both of those outfits.
We don’t live or trade in a theoretical world though. The fact of the matter is, like it or not, sometimes a stock is going to do what a stock is going to do, shrugging off even the most reasonable of fundamental arguments.
With that as the backdrop, regardless of rising revenue for AMD and the promise of strong profits in the foreseeable future, AMD stock looks like it’s trying to pull back. One more bearish nudge could do the trick.
On Its Heels
The red flags are subtle, but they’re red flags all the same.
Chief among the clues that AMD stock is slowly but sure slipping into a downtrend is the string of lower highs logged since July’s peak. Indeed, Advanced Micro Devices shares haven’t made any net progress since peaking early last year despite the market’s persistent bullishness since then.
Just as telling is how the stock’s short-term moving average lines are now under the longer-term ones (pointing to the persistence of the bearishness), but AMD stock itself is close to moving back below all of them.
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The lowest of those moving average lines is around $11.90.
There’s still a bastion of hope, however, should the floor near $11.90 fail. That’s the Fibonacci retracement line near $10.22, in conjunction with the absolute floor around $9.90 where AMD stock made a major low a couple of times last year.
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Fibonacci lines are natural, organic support and resistance levels that often create a trading framework when there aren’t any other technical guidelines. Though they’re a mathematical concept (you may have learned about them as the “golden ratio”) they’re ultimately based on nature and largely reflect traders’ perception of how far is “too far.”
Of course, if the potential floor around $10.00 fails to keep Advanced Micro Devices propped up, the next key Fibonacci retracement line is around $7.00, where the stock found some turbulence back in 2016.
Should the $7.00 area fail as a floor, if tested, there’s no meaningful technical floor again until we reach the 2015 lows of less than $2.00. That would be a very unlikely outcome though, given the turnaround Advanced Micro Devices has mustered.
The weekly chart of AMD also clarifies how the stock is fighting a losing battle, logging a streak of lower highs.
Bottom Line for AMD Stock
To be clear, this isn’t an indictment of the company. Under the leadership of relatively new CEO Lisa Su, Advanced Micro Devices has rekindled its once-significant relevancy. If anything, this is an indictment of how irrational traders can be from time to time.
Still, rational or not, AMD stock is playing with fire, and right or wrong it could burn existing shareholders. The brewing pullback could also serve as a window of opportunity though, allowing investors who missed 2016’s big rally to wade in at a more palatable price than 2017 ever offered. As the old saying goes, timing is everything.
Just don’t jump the gun. The potential meltdown hasn’t happened yet, and there’s always a chance it won’t. It would require a move at least back above the falling resistance line (orange, dashed) plotted on the daily chart to fully negate this brewing weakness.
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.
