Tech stocks made a powerhouse comeback Monday after stumbling into the weekend. The rapid snap-back was particularly impressive in the semiconductor industry with the likes of Advanced Micro Devices (NASDAQ:AMD) and Taiwan Semiconductor (NYSE:TSM) rallying hard all day long. Both deserve top spots in your watchlist, but it’s AMD stock that commands our attention today.
The California-based chip maker saw its share price soar 5.3%, ultimately forming a marubozu candlestick. The lack of upper or lower shadows means prices opened at the low of the day, ran higher for almost seven straight hours, and closed near the high of the session.
The implications are clear. Buyers emerged with guns-a-blazin’ from the get-go, and their assault never wavered.
AMD Stock Charts
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What’s particularly impressive about the run is it completely reversed Friday’s losses and took the current upswing to new levels. With Monday’s launch, AMD is now higher in seven of the last eight trading sessions. To those who have been long-following the chip space, strength from Advanced Micro Devices is hardly surprising. It’s a favorite among the momentum crowd for its high beta and consistent long-term uptrend.
Earnings surprises and positive fundamental catalysts have combined to create one of the hottest five-year uptrends on the Street. It wasn’t all that long ago that AMD was fighting to avoid becoming a penny stock. And we’re not talking about 10 years ago. In 2015, its price was carving out a low at $1.61.
Along the way, we’ve seen no shortage of rocket launches. But, unlike some fly-by-night stocks that scream higher over a few weeks and then melt back into irrelevance, AMD stock has had the ability to grow into its price jumps. The trajectory has been one of rapid rises followed by a slow burn to work off overbought pressures and allow long-term moving averages and fundamental improvement to play catch-up.
Fortunately, as is the case with all long-lasting uptrends, every pause and pullback has ultimately created a fantastic buying opportunity.
Aggressiveness Is a Good Omen
As the weekly chart below will attest, last month’s retreat was nothing more than a garden-variety retracement bringing prices back to the rising 20-week moving average. Except buyers didn’t wait that long! No, they piled in well before the 20-week even came into play. Their aggressiveness is a good omen and speaks to the underlying bullish tone surrounding the stock.
The other dynamic on the weekly chart buttressing the bullish argument is the volume during AMD stock’s downswing. The first week was a bit higher than normal, but the ensuing two weeks saw lower than average participation. It was suggestive of benign register-ringing and nothing more.
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As long as prices are above the $74 pivot, I see no reason to bet against further gains. We’re back above all major moving averages, and the $100 mark is beckoning.
Lever Up With Options
While you could always purchase shares for the planned ascent to $100, options offer a lower-cost and more leveraged route. Long calls work, but I prefer paring down the cost and warding off the ill effects of time decay by building a call spread. Call vertical spreads, to be precise.
We’ll go out to December to provide ample time for AMD stock to ramp to the century mark. And, to further cheapen the trade, we’ll use out-of-the-money options.
The Trade: Buy the Dec $90/$100 bull call spread for around $3.15.
The initial cost of $3.15 is the maximum loss and will be forfeit if AMD sits below $90 at expiration. The maximum gain is $6.85 and will be yours to keep if the stock can rise past $100.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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