Don’t Sell Advanced Micro Devices Stock Because of Nvidia

Nvidia is today’s headline excuse for selling AMD stock, but the big picture begs to differ

How Much Higher Will AMD Stock Go in the Long Run?

Source: Matthew Rutledge via Flickr

A case of tough love for Advanced Micro Devices (NASDAQ:AMD) just got a bit more difficult, as misery loves company in a challenging market environment. If investors can look smartly past the latest bear market warnings, it’s time to put AMD stock on the radar for buying. Let me explain.

Blame it on Nvidia (NASDAQ:NVDA). Considering how one of AMD’s more closely aligned competitors in the semiconductor space delivered a sales disappointment compounded by weak guidance and inventory issues Thursday night, investors certainly can’t be blamed for pointing fingers in that direction.

Still, with the broader market now several weeks into a meaningful correction following one the longest bull runs in modern history, it might be appreciated that it’s the kind of bearish environment where if it’s not one thing, it’s the other. As much, the news has and continues to favor lower prices in the market — and by association, AMD stock.

Don’t get me wrong. I’m not implying investors should sell their investments and stuff the money under a mattress until the coast is clear. I’m simply advising investors to be more selective in making a buy decision in AMD stock considering the demanding market environment. Bearing that in mind, the good news is NVDA stock is helping Advanced Micro Device investors with that process on the price chart.

AMD Stock Weekly Chart


If misery loves company, then AMD stock is not alone. We’re, of course, well aware of NVDA. But it’s important to remember that bull markets are born in fear. And given there’s plenty of that to go around right now, as well as AMD’s own bear market having put it into value territory on the price chart — it’s time to consider getting long Advanced Micro Devices.

The fact of the matter is AMD’s recent low successfully played out within a band of price support backed by the 200-day simple moving average, a trio of key Fibonacci levels, as well as holding above 2017’s prior base highs, which was broken out of earlier this year. That’s bullish. Of course, investors do need to ignore today’s loud and forceful warnings of doom and gloom ahead.

Bottom line, along with a weekly chart that’s sporting a confirmed hammer candlestick low and an oversold stochastics crossover that’s curling higher — it’s enough to consider buying AMD stock today, though not without the challenges of increased volatility. Having said that, if investors wish to reduce the chance of failure in a volatile stock, there are a couple other approaches which can be entertained.

3 Other Ways to Buy AMD Stock

I see three other ways to gain exposure in AMD stock with possibly a bit less volatility when entering into a position. The first way to buy Advanced Micro Devices would be to buy shares on a move above the recent high of $22.22. As the high essentially filled AMD’s bearish earnings-related price gap, it would be a strong technical statement for the stock to break above that level and all but confirm AMD’s bearish correction into a key support zone is over.

The second approach would be to purchase AMD stock on price weakness nearer to the recent low of $16.17 which proved to be a successful test of key technical support discussed above. We might anticipate this type of price action could form a double-bottom variation once confirmed with a bullish reversal candlestick.

The problem with this strategy is waiting to see just how low AMD stock can go before buying. With AMD stock shedding about $1.10 to $20.40 in Thursday’s after hours, it’s off to a good start. Obviously, though, shares are still removed from this type of pattern low, which in this strategist’s view would only come into play if AMD traded below $18 a share.

An alternative route to getting long AMD is through the options market. I personally like the idea of using a modified fence strategy by selling an intermediate-dated ‘at’ or out-of-the-money put spread and buying either a bull call spread or an outright long call if the prices look reasonable. This strategy can be entered into with any of the aforementioned technical entries, but also allows bullish traders to limit risk and decrease other options-related exposure which increases the odds for success.

Investment accounts under Christopher Tyler’s management currently own positions in AMD stock and/or AMD derivatives, but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.

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