I will start with the summary of today’s write-up by saying that Advanced Micro Devices (NASDAQ:AMD) stock reported earnings last night and traders loved what they saw. The stock spiked 5% overnight. Traders were correct to love the earnings report. Management is still executing on plans and there is nothing in it that says sell it.
AMD stock came into the earnings event up 60% which is double that of the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) and Micron (NASDAQ:MU), and exponentially better than Intel (NASDAQ:INTC). Clearly Wall Street gives AMD the benefit of the doubt, even at these market levels.
A lot of the credit goes to CEO Lisa Su. She has earned a great reputation. Consensus is that she has set the company on track to benefit from the current technology trends, including AI, the cloud and driverless technology. Gone are the days where AMD was a buy purely based on the bitcoin fever of 2017.
Last night’s upside reaction to the headline itself in after-hours trading has faded somewhat — after opening near $29, it has settled back down to around $27.50. The company beat the metric expectations and guided well into the future reports. So with time, the stock should continue higher.
Looking Deeper at AMD Stock
Coming into earnings, the options markets were expecting about a $3 move in either direction, so I don’t fade this rally for as long as price is still inside that range. There is resistance here from the open interest, but a spike like this could sway many a trader to change their mind.
So for the short term, there are lines that matter here. The only technical risk after this spike presents is what happened on April 3. AMD spiked into $30 per share then faded down 10%. But on the flip side of it, the $30 now also becomes the opportunity. If the AMD stock bulls can get back there and beat it, they would invite momentum buyers to target $34 or higher.
Click to Enlarge Conversely, it is important for AMD to hold $26.75, or else that line would become the trigger for a bearish pattern which could target the $24 area. This is not a forecast, but one of the two scenarios at hand from this level.
So the technical dilemma here is the opportunity of the $30 breakout line versus the risk of the rising wedge. A breach of either line would carry momentum in that direction.
So those who want to trade AMD stock for the short term should wait for the price to break out before committing to the trade. But given that the buyers are in charge of the stock market, I am comfortable owning Advanced Micro Devices stock here. After all, this is a stock that was up some 50% last year when the markets could not catch a bid.
In summary, if I am long AMD stock, this report is not a reason to leave my position. It shows that management is still executing on plans as well as they have been for months. So Wall Street will continue to favor the stock for months to come.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.