Advanced Micro Devices sunk 4.7% yesterday. Prices breached one support pivot and ended the session testing another one. With AMD stock a whisker away from a fresh 3-month low, fanboys are justifiably asking whether dark days are ahead.
While I’ll stop short of forecasting doom and gloom, there’s no denying that AMD’s once high-flying uptrend has run out of gas. Time will tell if it’s a blip or the beginning of something more ominous. I remain optimistic if for no other reason than the market has made it incredibly difficult to profit from bear trades.
Monday’s wasn’t isolated to Advanced Micro Devices. In fact, the entire technology complex tumbled. Let’s take a closer look.
Tech Got Wrecked
Sellers swarmed the Nasdaq on Monday, sending the tech-heavy index down 2.6% in the session. Volume swelled past 47 million, marking the largest selloff since the Jan. 29 distribution day. With the loss, prices are now the furthest below the 20-day moving average than at any time since Pfizer‘s (NYSE:PFE) vaccine news sent stocks into orbit last November. At a minimum, the deterioration is sending a warning across the tech sector. And that includes semiconductors.
If you want a silver lining, it’s that the Semiconductor ETF (NASDAQ:SMH) is holding up far better than the Nasdaq. While the latter sliced through key short-term support, the former did not.
The line of buyable dips for SMH has been extremely long. It’s a history I’d rather not bet against, at least not until we see longer-term floors give way. Until then, I think the current pullback is a buy for the overall industry.
That said, AMD is far from the best constituent. Applied Materials (NASDAQ:AMAT) and Taiwan Semiconductor (NYSE:TSM) boast better-looking charts, among others. Whether or not you’re still willing to build something bullish on AMD depends in large part on what you’re looking for. If you seek the top-performing or best-looking chart in the chip space, then Advanced Micro Devices is a hard pass. If you like the company and believe in its long-term prospects, this retreat should be viewed as an eventual buying opportunity like all of its predecessors.
Let’s take a closer look at the price chart.
AMD Stock Chart
Aside from the broader tech sector weakness, the catalyst unique to AMD that seems to have created the rug pull was earnings. Shares swooned after the Jan. 6 event and we’ve been in a downtrend ever since. While the 50-day moving average isn’t a perfect indicator, it has been effective at signaling when bears have come to town. It doesn’t mean every push below it results in a massive correction. It does mean that caution is warranted, and the path of least resistance shifts from up to down.
The 200-day moving average lurks below near $77 as the next major target. We haven’t tested it since last March. Needless to say, I believe any push into that level will serve as a prime buying opportunity for long-term positions.
One development we haven’t seen yet is a spike in implied volatility showing real fear entering the marketplace. If we can get one, it will increase the appeal of fading the drop with naked puts or put spreads. Those are my strategies of choice if you’re fishing for a bottom over the next few days. I specifically like using strikes below the 200-day.
The Trade: Sell the March $75/$70 bull put for 50 cents.
On the date of publication, Tyler Craig held LONG positions in CCL.
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