AMD Stock: Still Bullish
Quite a lot has happened since my last publication on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock. Expectations were high going in to earnings, and on May 1, the company reported earnings that were in line with expectations. But it was management’s disappointing forward guidance with regards to margins that sent Advanced Micro Devices stock into a tailspin. On May 2, AMD stock tanked to the tune of 24.2%, closing at $10.32 on the day. May 2 was the worst loss this stock suffered in over a decade. This sell-off has done quite a bit of damage to the technical picture, but I am here to point out that there is some solace for the bulls.
Before I begin, I need to point out, for those not familiar with my style of investment analysis, that I generate my views on a potential investment by analyzing its stock chart. This method of analysis is known as technical analysis. It is not as popular as fundamental analysis, but being a student of both methods, I have found that a stock’s price contains a lot of useful embedded information. The standout factor that sets technical analysis apart from other methods is that the information it provides is timely. With timely information, an investment strategy can be built.
The following Advanced Micro Devices stock chart illustrates the technical damage that was caused as a result of the disappointing earnings.
Chart courtesy of StockCharts.com
This AMD stock chart was highlighted in my previous publication. I outlined that a tight range had developed and the direction that price exited this tight range would dictate which direction Advanced Micro Devices shares were heading in next. The $12.50 price point proved to be a significant level of support because after I mentioned it in my publication, it was tested a number of times and buyers were willing to step in and support this level. It was not until disappointing earnings were announced on May 1 that the bears were able to gain the upper hand and break below this level of price support.
There was such negativity following the disappointing earnings report that it caused AMD shares to gap lower the next day. This gap didn’t just break support, it shattered it. Breaking below this key level has done some technical damage to the price chart because it has caused the trend towards higher prices to slow.
Price gaps are significant, and this case is no different. Gaps come in many forms and this one is either a breakaway gap, or an exhaustion gap. If this is a breakaway gap, it would suggest that a new bearish trend has just begun. If this is an exhaustion gap, it would suggest that this is merely a correction in a bullish trend. If Advanced Micro Devices can fill the gap, it would give me further confidence to presume that this gap was an exhaustion gap.
Following the earnings release, AMD shares did find support, and price has rebounded as a result. The level at which support was found was not a sheer coincidence, and the following Advanced Micro Devices stock chart illustrates why.
Chart courtesy of StockCharts.com
Following the painful reaction to earnings, AMD stock found price support at a very important level. This important level is the 200-day moving average. The 200-day moving average is a popular moving average used by market technicians because it acts as a dividing line between bullish and bearish stocks. When a stock is trading above its 200-day moving average, it is presumed that the investment is still healthy and the trend remains pitched towards higher prices. The opposite can be said when a stock is trading below the 200-day moving average.
The fact that the 200-day moving average stopped the sell-off cold in its tracks is not in any way a coincidence. Some can interpret this type of price action to mean that although there has been some technical damage to the price chart, the stock remains bullish.
It is not uncommon for the 200-day moving average to act as a level of price support. AMD shares first broke above this moving average in March 2016, and the price went on an epic run. Returning to test this moving average seems like a venture that is long overdue. Let’s not forget that the slope of this moving average is still positive, which reinforce the notion that the trend remains to the upside.
If AMD can fill the price gap, the current sell-off that followed earnings could turn out to be just a hiccup in a much larger bullish trend towards higher prices.
Bottom Line on AMD Stock
Advanced Micro Devices stock has sold off following a disappointing earnings report. The sell-off was dramatic, but AMD stock has found support on the 200-day moving average. This moving average is very significant, and as long as price remains above this moving average, I can only assume that the bullish trend towards higher prices is still intact.