What a story Advanced Micro Devices (NASDAQ:AMD) has been since early 2016! Largely chalked up as a has-been that couldn’t keep up with rivals Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC), a regrouping effort that took shape around the same time the term “bitcoin” started to become mainstream drove AMD stock well out of an ugly rut by early 2017.
It was only a taste of what was to come, however. After stalling for the better part of 2017, another round of new (and even better) product launches and the advent of full-blown cryptocurrency-mining mania in early 2018 would prove a huge boost for AMD. Advanced Micro Devices stock rallied more than 200% between April and September of 2018.
All told, between February of 2016 and September’s peak, AMD stock gained more than 1500%. Wow!
A massive piece of that gain has since been wiped away, of course. AMD shares are currently trading at around half of their September high, with the crypto market imploding on itself. As it turns out, they’re the mirage a bunch of people warned they were. Also as it turns out, Intel and Nvidia aren’t exactly cowering in their respective corners.
Still, what a story!
The steep selloff, as one might expect, has some would-be buyers licking their chops over this highly-watched but highly-oversold stock. Other observers are terrified the recent pullback is an omen of worse things to come. Both sides of the table have come to their conclusions for understandable reasons.
Perhaps more important though, neither the bulls nor the bears will win or lose because of the fundamentals they think they may see for Advanced Micro Devices. AMD stock is a coin toss, plain and simple, mostly subject to the daily whims of the financial media. You’re better off focusing on the chart, which right now is in a precarious situation.
Reality Check on AMD
It’s not an idea most investors are prepared to admit, even if only to themselves. A handful of veteran traders know the game that’s being played though. While it’s not a reality that fits nicely within a conventional stock-picking paradigm, AMD is a story stock, with all the characteristics and trappings thereof.
Translation: Though they’re being batted around, concepts like “growth” and “market share” and”innovation” don’t actually mean much here, even to the people using them to justify a buy/sell decision. Mostly, the experts are chasing momentum.
That needs to be repeated, just for good measure: Even the experts are mostly chasing momentum. In some cases, they’re banking on reversals panning out after an overheated move. With either strategy, they’re justifying their pursuit with a semblance of a fundamental argument.
It’s a notion that’s undoubtedly just made a huge swath of traders uncomfortable. That doesn’t make it untrue though. Indeed, some serious soul-searching actually leads most traders to that conclusion.
It’s also not a bad thing, to be clear. There’s good money to be made in trading a stock capable of huge swings, particularly for traders willing and able to short a stock.
And it’s that particular strategy traders may want to put on their radar today.
Advanced Micro Devices Chart
The good news about Advanced Micro Devices being boiled down to little more than a story-driven chart is, the market is pretty generous when it comes to drawing clear lines in the sand for story stocks.
The profit-taking pullback AMD has suffered since September has been a seemingly typical one. It’s better grounded than most traders might realize with nothing more than a cursory glance, however.
Though it was sometimes a fight, once AMD stock broke below a key moving average line, that line has tended to come back in play as a technical ceiling. A handful of those instances are highlighted on the daily chart below. Chief among those red flags is the fact that AMD is now below the pivotal 200-day moving average line, plotted in white.
The horizontal support around $16.00, plotted in yellow, is also back in play and carries more weight than merely being the spot near where the past couple of major lows were made. As the weekly chart illustrates, that’s also more or less the upper boundary of the 2016 trading range.
Former floors that become ceilings are inherently more important battle lines.
More important here and now, a move below the $16.00 area could put another wave of selling in motion. It’s unlikely that good news could stave off another round of profit-taking, as investors are already primed to see the glass as half-empty rather than half-full.
Bottom Line for AMD Stock
Again, this isn’t what most fans and followers of AMD stock wanted to hear. Stock charts are supposed to reflect fundamentals, rather than drive the interpretation of the numbers a company is producing.
That’s not how things work in the real world though. Sometimes, the tail wags the dog. This looks like one of those times. Take a closer, careful look at the headlines and cross-reference them with the chart of Advanced Micro Devices stock, and you’ll find the bullish rhetoric tended to develop after the stock started to push higher.
Likewise, the bearish rhetoric only started to materialize in earnest after AMD stock started to tumble. Should AMD break below $16.00, look for the bears to crawl out of the woodwork and drive a retest of the floor around $9.20.
It’s all part of the game for high-profile story stocks. Ignore that game at your own peril, even if it’s not the way things are “supposed to be.”
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.