AMD Stock Delivered Results. It’s Time to Reset the Trade.

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Over the years I’ve written a lot about Advanced Micro Devices (NASDAQ:AMD) and AMD stock. Most times it was on the bullish side. I will remain consistent with my assessment of it suggesting it’s a stock to hold for the future.

Image of the Advanced Micro Devices (AMD) logo outside of a corporate building
Source: Sundry Photography / Shutterstock.com

If the stock markets are higher ten years from now then AMD stock is in the lead. But I am not a perma-bull because I’ve occasionally shared a few concerning stints. Under the leadership of Dr. Lisa Su Wall Street loves owning it. It has its critics but I think they are wrong to expect failure from this management team. The opportunity is too strong.

2020 was a disaster for humans but it was a gigantic gift for technology. We’ve been in a digital revolution for decades but the pandemic made the ramp of it exponential. There is no doubt that everyone is rushing to get “online” with whatever they are doing. Therefore demand for tech products and services will remain strong for years.

AMD is one of few companies who supply the brains for said tech. There is enough elbow room for it, Nvidia (NASDAQ:NVDA) and even Intel (NASDAQ:INTC) to prosper. Barriers to entry at this scale are significant but even then, they can all thrive.

AMD Stock Price Action Is Orderly

Advanced Micro Devices (AMD) Stock Chart Showing Tight Range
Source: Charts by TradingView

In December I suggested that there was no obvious point of entry then. It wasn’t a bearish article per se but I cautioned about timing. In it, I suggested that AMD would make a better buy closer to $88 per share. That was what happened as AMD stock fell 8% and bounced twice off of my support.

Here it is now challenging the same highs once again with an opportunity to break into three digits. However I have to renew my caution against blindly chasing it for short-term gain. My trading strategy would be to either buy the rip above the prior fail, or buy the dip into support. Either way it’s a bullish bet with two different trigger points or approaches.

Those who want to own it for a very long time can buy it and ignore the short-term blips. Over a decade, it’s not going to matter much a few dollars higher or lower than current price. But for traders who prefer entering stocks before rallies then it behooves us to try to find favorable zones. AMD stock remains my pick of the litter when it comes to chip stocks. But for new positions I would wait out the next couple of weeks.

At the very least I don’t enter a full size position right here and now. We have to remember that the risk is not all from within the company. It has excellent prospects but it has to trade in the prism of an entire market. The indices cannot stop breaking records even on deteriorating conditions. There is a possibility of a correction and that would bring pain to AMD stock regardless of its particular situation.

Cheap Is Not Always a Good Thing

Fundamentally it’s not cheap, but that’s not a problem for me. Its three-digit P/E scares a lot of investors. Growth doesn’t come cheap. I’ve made that argument over and again using Amazon (NASDAQ:AMZN) as an example. For a decade experts called it expensive and demanded it cut spending. Had they heeded that advice, the world would not have gotten AWS, which houses the cloud as we know it now. AMD and Nvidia are trying to reinvent the future, and that requires expenses. Great ideas are taxing on the companies that are trying to bring them to fruition.

Expectations matter because often perception trumps reality. In AMD stock’s case the buyers are somewhat realistic. The price-to-sales is still under control and much cheaper than Nvidia. If the bulls are realistic then the odds of disappointment is relatively low.

Even though it’s not dirt cheap, it is definitely not flagrant. Wall Street is full of bloat among newer companies these days. Competition is fierce but it’s a tight field. It’s been a two horse race among three giants. Intel is now badly lagging but it’s still in it. All three will push each other hard so collectively they will go farther.

I’d own AMD for the long term. Otherwise, I’m a buyer of AMD stock on dips. Meanwhile I watch for upside triggers to chase. For the traders among us a break above into a new all-time high will bring another wave of buyers. Therefore my earlier caution was definitely not a call to short it. I am merely opting out of going all in at a point where it’s not an obvious buy zone.

If markets hiccup this week or next then AMD first line of support is near still $88 per share. Even if that support fails there is a ton more of it at $8 lower. If the selling persists it would still have many layers to slow the sellers down. I want to caution about a slippery zone below $76 per share. If prices fall through that it would be a monumental gift to buy.

Investors Need to Use Modern Trading Tools

They don’t ring bells at tops and bottoms but they do give clues. Charts matter and so do the technicals. Machines are doing the trading and they don’t use emotions or opinions.

Prior failing points should be resistance zones, and we are coming up on one with AMD stock. If not long already I’d rather wait to see what happens there. Chase the breakout if it happens for a trade, or buy the dip if it fails. That is a strategy that has worked over and again with these momentum stocks.

What has also worked is using options. Selling puts below current levels has worked flawlessly for AMD stock. I can collect $3 per contract today for the opportunity of buying the stock at a 15% discount. This makes me long AMD with a nice cushion leaving room for error.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Nicolas Chahine is the managing director of SellSpreads.com.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/amd-stock-delivered-results-its-time-to-reset-the-trade/.

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