Unlock Premium Data: Up to 50% Off InvestingProCLAIM SALE

Chart Of The Day: AMD's Decline Could Be Far From Over

Published 10/19/2022, 07:47 AM
Updated 07/09/2023, 06:31 AM
AMD
-

Two and a half months ago, I wrote why AMD may be about to crash. I made the argument that weak guidance will overshadow strong fundamentals.

Sure enough, the company's valuation has plunged since. Advanced Micro Devices' (NASDAQ:AMD) current market cap of $93.57 billion, is down 46%.

Analysts relying solely on fundamentals have been overwhelmingly positive about the company's valuations, expecting it to rise. A Wall Street Journal (WSJ) survey demonstrates that these analysts have become more bullish as the tech giant's market cap slides.

Three months ago, the WSJ had 22 buy versus one sell recommendation. One month ago, that ratio widened to 25 recommending a buy and again 1 to sell. Currently, the WSJ has 27 buys and zero sell recommendations on the stock.

Tipranks shows the same solid consensus: 20 buys versus 1 sell, with an average price target of $97.50, a 56% upside. The highest target is $200, a 73% surge.

My target is $34.

AMD Daily

The stock may be developing a second consecutive rising flag. After the company lost a fifth of its value in three sessions, short sellers quickly locked in profits. The following congestion represents the crowded trade between short sellers buying back the stock and ongoing supply by other short sellers. The downside breakout, like for the first flag, should repeat the move to the downside, as the market uncorks the pattern's trading pressure to the downside once supply drowns out the demand created by the short covering.

The target is, therefore, a $15 downside move from the breakout point, which should be around the low $40s. However, there's more.

AMD Weekly

As I described in my August article, the preceding H&S—Aug. 2, 2021 to Apr. 11, 2022—indicates a much lower target. The H&S height of $65 is the expected downside move from the breakout, as technicals statistically slingshot prices downward proportionately to how far prices stretched the other way. Therefore, the $99 breakout point minus $65 is $34.

Moreover, there is an even larger H&S top at play. Its $90 height seems to suggest a repeat performance from the $74 breakout point. However, that would take the price below $0. I honestly don't have experience with this pattern being larger than a company's stock's previous gains and am therefore not considering this target. This anomaly is another example of market distortions after the significant quantitative easing that took place during the coronavirus pandemic.

Trading Strategies

Conservative traders should wait for the current flag to complete with a downside breakout, or if it blows out, to find resistance by the first flag. Then, wait for resistance confirmation with either flag.

Moderate traders would wait for the same, as well as for the return move, but a closer entry if not for confirmation.

Aggressive traders could short upon the current flag's downside breakout, on a closing basis, or upon a return to the first flag.

Trade Sample - Aggressive Short

  • Entry: $57
  • Stop-Loss: $60
  • Risk: $3
  • Target: $45
  • Reward: $12
  • Risk-Reward Ratio: 1:4

Disclaimer: The author has no positions in any securities mentioned in this article.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.