Semiconductors like Advanced Micro Devices (NASDAQ:AMD) stock have been red-hot in 2021, and they’re aiming to end the year as they began – buoyant.
While there is no shortage of stunning charts, AMD stock offers the cleanest and most compelling opportunity right now.
Its share price smashed through resistance right after Christmas, and it’s even come back to give spectators a second chance. How thoughtful. This is an opportunity you shouldn’t pass up.
Here’s a mind-boggling reminder for you. Six years ago, Advanced Micro Devices languished in a basement at $1.61. Since then, it’s risen 100x and lives on the moon.
Forevermore this will be my poster child for illustrating the concept of a trend in motion remaining in motion.
Given the otherworldly gains, it’s no wonder momentum traders love the stock. Its average daily trading volume hovers near 60 million shares.
The liquidity and above-average volatility also make it a favorite among day traders and options gunslingers.
Buy the AMD Stock Dip
This year, the daily trend hosted multiple surges, and the stock now sits with a 62% gain for 2021.
Of course, these glowing remarks don’t mean you should blindly buy the stock. Waiting for a low-risk entry increases your odds of success while offering a better reward-to-risk ratio. That’s what makes today’s message so timely. AMD stock has just such a setup right now.
After Christmas, prices blasted through resistance at $147 to finally form a higher pivot high. We also cleared the 20-day moving average.
Those who missed the Dec. 27 burst will be happy to learn that prices have come back for you. We’re now retesting old resistance, and it has a good chance of becoming new support.
Chartists call this the principle of polarity. We’ve now retreated for three straight sessions, and the 20-day and 50-day moving averages are also rising to provide potential support.
If you think the New Year brings fresh buyers, this is as good an entry as any.
While we could end the analysis there, it’s worth mentioning that Advanced Micro Devices benefits from the relative strength of both the tech sector and the semiconductor industry.
In other words, when you engage in top-down analysis, filtering down to AMD after viewing its sector and industry, the case becomes even more compelling.
Tech Rules the World (Almost)
Line every sector up with their 2021 performance, and do you know what you’ll discover? The technology sector rose 36.4%, coming in third behind energy (53.8%) and real estate (45.2%).
I wouldn’t be too hasty to poo-poo tech for not being first. The rocket ship recovery in crude oil demanded energy stocks rise to the top, and real estate doesn’t exactly compete with the technology for dollars.
Drilling into the tech sector will reveal that semiconductors, as measured by the VanEck Semiconductor ETF (NASDAQ:SMH), led the way.
At 43%, SMH’s 2021 gain officially bested the broader tech sector. If you believe that strength begets strength, this is undoubtedly a stat supporting bullish ideas for AMD and its peers.
A consolidation zone formed over the past six weeks, allowing SMH to digest this year’s gains and build a base for its next advance. This creates a lower-risk entry for new positions than chasing after a massive price spike.
A push above $318 should bring buyers rushing in and make it all the more likely the pullback gets bought in AMD.
Call Spreads Look Tasty for AMD Stock
The options market provides many ways to capitalize on the AMD pattern. However, I suggest purchasing call spreads to squeeze the most potential reward out of the next upswing.
When structured properly, this strategy offers returns on investments from 100% to 200%.
The Trade: Buy the Feb $150/$165 bull call spread for $5.
Your max loss is $5 and will be lost if prices sit below $150 at expiration. The max gain is $10 and will be captured if prices climb above $165.
On the date of publication, Tyler Craig was LONG AMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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