A friendly trend has become a good deal more confusing in Advanced Micro Devices (NASDAQ:AMD) following earnings. So is now a good time to buy, sell or hold AMD stock? Let’s take a look at the latest information on and off the price chart to reach a more informed decision.
On the heels of AMD’s Q2 earnings report, investors and Wall Street are at odds. Headlining the report — and much to the chagrin of bullish investors — was a surprise cut to the company’s third quarter and full-year sales forecast. And with shares benefiting from upbeat revenue expectations for the back-end of 2019, the news sent AMD stock down a decisive 10.10% to finish at $30.45 and near session lows.
To be fair, the announcement and price action raises the specter there could still be another shoe to drop. Interestingly though, despite AMD’s backtracking, 18 analysts actually hiked price targets. The increases boosted AMD stock’s average price target to $43.24 from $30.62 and 42% above Wednesday’s closing price.
Bearing in mind the contrasting reactions by analysts and investors, it begs the question, was Wednesday’s selling pressure merely profit-taking on shares which still boast a year-to-date gain of 60% in 2019 and nearly 200% since 2018? Or is this the start of a more sinister trend in AMD stock?
AMD Stock Weekly Chart
One day doesn’t typically make a trend. As such, it’s important to look at the weekly price chart in order to better understand whether AMD stock is a buy, sell or hold.
Technically, last week’s second failure to break cleanly out of the ten month long base is disappointing. Now on the heels of Wednesday’s selloff, bears could defend the overall price action as an ominous triple top or alternatively as a failed cup and high-handle pattern. Either way, it’s bearish. And I understand what they’re seeing, but it’s not the entire story.
It’s also true AMD stock remains in an uptrend by classic standards — such as its series of higher highs and higher lows. That observed price action would only fail if shares dropped beneath the June low of $28.67. And they’re holding about $30 as of this writing.
Another method of defining AMD’s trend is the long-term 200-day simple moving average. Using that indicator as a guide, Advanced Micro Devices is not only in a bull market, it has a substantial price buffer of nearly $5.50 with the moving trendline near $25 a share.
Click to Enlarge
I personally remain optimistic of the uptrend in Advanced Micro Devices stock. For buying purposes however, I wouldn’t simply buy shares into overt weakness like Wednesday’s price action due to AMD’s less predictable business prospects. Before picking up shares, I’d like to see a weekly chart reversal pattern form over the next couple weeks to confirm a purchase.
My technical line in-the-sand for remaining bullish without fearing a much larger correction is in the works is if AMD stock falls beneath $27.21.
How’d I arrive at this particular price for pulling the plug on AMD’s bull market? Along with an allowance for wiggle room given AMD’s volatility, this level is beneath the 38% retracement level, as well as a former resistance line dating all the way back to AMD’s key highs in 2000 and 2006. I believe the combination of supports should hold, unless a more menacing cycle is underway.
Additionally, if shares were to drop to $27.21 this would result in AMD stock correcting by 23% and still under pressure. To be certain, 30% declines are quite common for growth stocks, even in healthy markets. Nevertheless, given the body of evidence and less-certain, post-earnings environment for Advanced Micro Devices, I see my line in-the-sand as sufficient leeway, while avoiding the mistake of playing shares too closely to the vest.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Advanced Micro Devices (AMD) and its 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.
