Advanced Micro Devices, Inc.: Critical Price Levels in AMD Stock
AMD Stock: Still Bullish?
The market was under duress on Friday as selling was the predominant theme. As soon as the markets opened at 9:30 a.m., the selling began and that downside pressure persisted all day as the indices closed at their respective lows. Advanced Micro Devices, Inc. (NASDAQ:AMD) stock was no exception, as AMD stock closed down 5.22 % on the day. AMD stock has had quite the impressive run this year, and perhaps this selloff is setting up an opportunity to acquire some good-performing names on the cheap, as liquidation is the order of the day and is known to create buying opportunities.
Many pundits and media outlets are scouring for reasons that justified this selloff in the indices. September is known as the worst-performing trading month of the year. I refer to this time of year as hurricane season, as much market turmoil centers around this month. If I were to speculate to the exact cause of the selloff, I would point my finger directly at the yield curve. Interest rates ticked up last week and I believe that was enough of a catalyst to send AMD stock and markets tumbling.
The following chart illustrates the yield on the 30-year U.S. government bonds.
Chart courtesy of StockCharts.com
The uptick in rates began on September 8, 2016 when the 30-year interest rate broke out above its consolidation wave (highlighted in purple). The close above the range sets in motion another impulse wave (highlighted in green). The pattern is suggesting that the short-term trend in interest rates is now higher, which is a big change from the predominant trend of lower yields. The higher rates cause the yield curve to steepen, and that was enough of a catalyst to cause the relentless selling witnessed on Friday.
The selloff in AMD stock was not company-specific. It was a combination of timing, higher rates, and Fed rhetoric that spooked the market. If this is indeed an opportunity, it is wise to to look at potential levels of support that could help halt this decline.
The following chart illustrates potential levels of support for AMD stock.
Chart courtesy of StockCharts.com
The line highlighted in purple is the uptrend line, which is created by connecting the troughs in the price chart. This line represents the current bull market move in AMD stock. A break below this trend could open the door to more selling, as many traders are watching the same trend and anticipating support.
Below the trend line lies the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish; when the share price is below the moving average, it is bearish. This moving average will act as support if AMD stock does trade down to this level.
The 200-day moving average is not the only level of support below the uptrend line, as the following AMD stock chart Illustrates.
Chart courtesy of StockCharts.com
Fibonacci retracement numbers are a technical tool used by traders to identify where price support and resistance can be found. The most popular numbers eyed by traders is the 50% and 62% retracement levels. Depending on the trading strategy, traders will use these levels to enter or exit their respective trades.
The theory surrounding these numbers is that after a stock completes its primary move, it will retrace it by approximately 50-62% before resuming the primary trend. This area is referred to as the box and is highlighted in blue on the chart above. I would not be surprised to see share support develop in the box if the uptrend line was broken to the downside.
A volume spike (highlighted in purple), especially on the downside, has a tendency to mark lows. This is because this event marks a selling climax, as many shareholders are panicked out of their positions all at the same time. This may not mark a long-term bottom, but it will create some support in the interim.
The Bottom Line on AMD stock
September has been historically the worst-performing month for equities. Major selloffs in the indices seem to be a common theme at this time of year, and these events are stemming from market risk vs. company-specific risk. In the past, these events have created opportunities to acquire favored names. There are numerous areas of support that range from the current price all the way down to the 200-day moving average. As long as the price remains above the 200-day moving average, my bias will remain bullish on AMD stock.
