- Advanced Micro Devices (AMD) stock needs a bounce and stat.
- Intel (INTC) is falling into a 5 year old support zone.
- Technology Select Sector SPDR Fund (XLK) falling back to replenish momentum.
Make no mistake about it, equity markets are still near all-time highs. This means that the opportunity for corrections from here remains very significant. There is plenty of room to fall should a correction really kicks in. Meanwhile, there’s no evidence of particular imminent trigger. But there is no shortage of potential culprits. Hence there’s reason to bet on one of these three tech stocks to buy this week.
The focus this week will likely be on banks stocks. JPMorgan (NYSE:JPM) will kick off its earning season midweek. They don’t have the best of records in upside follow through after their earning season. Money will need to go somewhere else, maybe into tech. However, this doesn’t alleviate the risk. All three of my tech stocks to buy have similar risks below their current prices. This makes them liable even for sympathy pains from other companies reporting. Small hiccups, even if in sympathy to banks, can turn into bigger debacles.
A symptom of this concern is visible in the Nasdaq. If it loses its footing this week, it is likely to drop at least 2% to 4% quickly. This may be enough to trigger a more serious drop in the three tech stocks I am proposing today.
This highlights the importance of treating these stocks like tactical trades rather than investments. Conviction is medium at best for that reason, even if none of them are bad. These are extremely successful companies that will be successful with what they do. The discussions today is about how to profit from their price action in the near term.
|AMD||Advanced Micro Devices||$97.78|
|XLK||Technology Select Sector SPDR Fund||$149.52|
Advanced Micro Devices (AMD)
I will start with Advanced Micro Devices (NASDAQ:AMD) because it’s my favorite. Under the current leadership it has accomplished so much. Its financial statements have improved to a point that one can consider them cheap. This is a relative term of course, because it is a high-growth company. You can’t accomplish what it has been doing for years by pinching pennies. But it’s all relative to its competitors and AMD stock is solid on that front.
On the other hand, it technically teetered above a sharp line of support last week. Losing that today will carry it lower but the thing to do is buy the dip near support. The potential target can extend $25 lower, but there are support lines at $95 and $90. The bounce should be enough time for the bulls to regain their footing at least for now.
This may upset the fans, but my intention is to merely point out the potential for it. I’m not guaranteeing a $25 drop, in fact, I am betting on the opposite happening. It’s almost a case of a “so bad it’s good” trade. Once a stock falls into a hard line of support like this, I can get bullish on the assumption that it could flush out the short-term weak hands. But I must also place tight stop rules in place in case I’m wrong. Fundamentally, AMD stock is on rails for the long term. If the stock markets are higher in the future, then I am confident it will be leading too. This is a tactical trading opportunity independent of investment decisions.
The opportunity Intel (NASDAQ:INTC) now is slightly different than AMD. INTC stock is also falling, but not into as sharp a line as AMD. Intel has a habit of bouncing off of a wide zone that lies directly beneath current prices. Therefore, this tactical trade could also work for a longer-term investor. However, it needs to only take partial positions to start.
When we talk of growth, INTC stock doesn’t come to mind. However, it is the king of value, especially in the semiconductors sector. Make no mistake about it, Intel is the behemoth here, but it doesn’t get the respect it deserves from traders. It is larger than its two other major competitors in total and twice over.
At some point that position of dominance will come back into play. If that’s the case, then in the future INTC stock will attract more attention. Until then, I would prefer to use options to sell puts into the support zone below. This way I can collect some premium for being bullish without outlays (all while leaving room for error). Owning a few shares for the long term would also make for a good starting position for investors.
Technology Select Sector SPDR Fund (XLK)
The opportunity in the Technology Select Sector SPDR Fund (NYSEARCA:XLK) is not exactly representative of the one in pure chip stocks. The two main XLK components are Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). They account for 40% of the XLK fund. This makes the opportunity in the XLK similar to that of tech stocks more broadly.
The difference is clearly visible in the chart of the XLK versus the VanEck Semiconductor ETF (NASDAQ:SMH). Opting for the SMH now would be too similar to AMD. It also needs an immediate bounce or it will trigger a bearish pattern. The XLK on the other hand, simply shows a mild retracement after a strong rally. Therefore, there might be a bit of room to give back still without cause machines to chase it lower.
The fundamentals of the XLK components are beyond reproach. The list is of the top tech global companies, including fintechs like MasterCard (NYSE:MA). Technically, it failed at $164, where there now lies a potential catalyst. It will be resistance until the bulls gather enough steam to punch through. Conversely, there isn’t much of a hard floor of support until closer to $146 per share. There will be willing buyers below these levels, but not a fine line. Nevertheless, $146 has played a major pivotal role since the Jan. 24 crash. I expect it will remain relevant for a bit longer. XLK bulls will do well to not test the theory of what lies below.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.