I recently wrote about Advanced Micro Devices (NASDAQ:AMD) and suggested a bullish position. It paid over 20% in about two weeks. This was the case last time so clearly this one moves fast and in the right direction. Although my intent is slightly more long term, the short-term wins that AMD stock delivered are fantastic.
In mid-June, sellers had their way with the stock, but only to retest the neckline from which the bulls had recently broken out. This was all part of normal price action. Today, hold Advanced Micro Devices stock for the long term.
Often when I get a profit that materializes too fast like this one I trim some if not all of it. But that is only because I am an active trader when dealing with momentum stocks like AMD. Those who prefer a hands-off approach need not worry about the short-term gyrations. The bet on this stock is up.
Hold AMD Stock Through $50 or Higher
We now rely on technology more than ever. It touches almost every aspect of our lives. Everything has tech in it, if not at the user interface then definitely behind the scenes. It takes judicious conscious effort to be truly unplugged.
The demand on the products and services from companies like AMD is only going to increase. The barrier to entry is very high. It takes new technological breakthroughs to join the major tech companies in supplying this tech. So AMD will continue to thrive along with its competitors.
The particular fundamentals vary largely among them. AMD stock price is not the cheapest. It sells at a three digit price-to-earnings ratio and 6 times sales. This is a P/E 10 times bigger than Intel (NASDAQ:INTC) and four times bigger than Nvidia (NASDAQ:NVDA).
From an investment perspective, you get what you pay for. AMD stock has out-performed all its competitors by a long shot. Last year, when the whole stock market was falling off a cliff, AMD was up 50%. This year AMD is up 91% and 146% in two years. This stock continues to lead and investors should stick with it.
Recently the technology sector stocks, especially chip suppliers, were hit hard as the headlines surrounding Huawei flew. They are directly impacted by what happens there. But these are temporary because politicians are using businesses as leverage in their negotiations.
The U.S. and China are still in an economic head-butting war that has dragged on long enough that it will eventually lose its headline effect. Eventually AMD stock price will stop being a political football and will continue to trade on its own merit.
Trading Advanced Micro Devices
In June the short-term support levels held. This is a cluster around $29 per share and I expect that to continue unless the markets in general correct sharply this year. Conversely, the upside trigger still looms above near $34.40 per share.
For the long term investors, there is no need for action. For the shorter-term momentum traders, it is best to chase a breach of either side of the trigger zones noted. A good way to trade AMD stock for the past two years has been to simply buy the dips. So far the stock has not disappointed.
The odds stack up against the AMD bears. In June they had a lot going for them and they failed to keep the stock down. Headlines and seasonality gave the edge to the sellers and they ran out of steam. Credit goes to the AMD management team under the leadership of Lisa Su that has gained the respect of Wall Street investors.
In my last write-up I also noted the opportunity to create income out of thin air by selling the AMD October $26 put. That trade has yielded $1.50 with nothing out of pocket. I can repeat the process now by selling the January $27 per share and collect $1.80 per share. If AMD stock price stays above my strike I win completely. Else I would own the shares at $27 per share and break even at $25.20.
The S&P 500 is still at all time highs so the odds of a dip increase at these altitudes. This makes all bullish entries into stocks, even good ones like AMD, carry a little more risk than normal. So I keep my sizing to half size so I leave room for risk management.
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. Join his live chat room free here.
