Advanced Micro Devices (NASDAQ:AMD) stock rallied 20% after the last time I wrote it up as an opportunity to buy. This is a proven winning that is a great trading vehicle but also a strong long-term bet. This is likely to continue.
Because of what’s going on between the United States and China, the tech sector and specifically the chip manufacturers have been in and out of favor on Wall Street of late. The economic war that is still lingers from last year and now focus is now on Huawei.
Since politicians prefer doing their negotiations through headlines, stocks like AMD, Micron (NASDAQ:MU) and Intel (NASDAQ:INTC) suffer the consequences of the political rhetoric between the two countries.
Broadcom (NASDAQ:AVGO) recent earnings was the latest tangible result and it was not good. They raised a big alarm warning of tremendous negative impact on their business. Investors then indiscriminately extrapolated those risks onto the rest of the sector. Traders got a real taste of the impact that this economic struggle has had on the bottom line. So to say the least, there is uncertainty in the chip sector going into next quarter.
AMD Stock Should Continue Upward — Over the Long Term
The point of today’s note is that some company stocks will be fine. AMD is one that should retain its incredible momentum. It is up 60% year-to-date date, up 90% in one year, and up 585% in five years. Clearly investors love the stock and they will continue buying the dips in it.
But it won’t all be good days. It is important to note that for the next few days, there is a bearish setup in AMD stock. In spite of support below $29, the AMD sellers could retest $26 per share. The range since April has tightened so there is tension building in the stock. So the next burst in the stock is important but won’t change the overall direction. Meaning the bulls are still in control of AMD stock.
AMD is not cheap. So if someone is short AMD, they’re not compelled to cover their positions until the stock rebounds above $31 per share. But if the equity markets continue to rally as it has been then shorting AMD alone is reckless because there is no reason for it to fall alone.
Expensive or not, investors — as opposed to traders — are interested in buying AMD for at least five years, so they are not sell now. Thus, the AMD bears need a new thesis to continue sustain their selling efforts in the face of this adoration.
Its competitors like Nvidia (NASDAQ:NVDA) and Intel are definitely cheaper but they have not been as good a stock to own as AMD. So I guess in a sense one could argue that you get what you pay for. AMD management continues to execute well on plans so the AMD stock should continue to climb the wall of worry as it has been.
Trading AMD Stock
Before the October correction, AMD stock hit $34 per share before it failed. Then recently it also failed again from exactly the same level. This will start the chatter about double tops. Those short the stock drool over the possibility of another debacle like what happened late last year. But this time it is different because the Fed is working with the stock market ready to prop things if business worsens.
So even if the AMD selling continues I don’t expect it to go as deep as last November. We are going into another earnings season, and I expect that management will again deliver strong enough results to support the stock. There is major support at $28, $26 $24 and $22 per share. So the bulls have several layers to help them build the base for more upside.
Seasonality suggests that the overall markets usually suffer the week after the June options expire. So the bears have a window of opportunity for the next few days going into the G20 meetings in Osaka. But if good things come out of that meeting, even if they just kick the can down the road on resolving the issues between the United States and China, markets will rally. Then the bears window of opportunity closes fast.
With the lack of new bad news, the market will rally and so will Advanced Micro Devices stock.
In summary, AMD is a winning stock without an intrinsic reason to stop. Their products and services are in high demand and so is their stock on Wall Street. Furthermore the bulls can afford to lose a few fights below current levels on the charts and still come out ahead. The double-talk rhetoric will fail as long as the overall markets rally for the next couple of weeks. If I’m short AMD I would at least trim my position. If I’m looking to go long AMD anywhere close to $28 per share to the decent place a reload.
For those who like to use options and want to get a cheap entry into AMD stock, I can sell the October $26 put and collect about $2 per contract. So if the stock falls below it then I own the shares and break even to $24. If not, I am already long the stock with a 20% buffer from current price.