Chart Of The Day: Why AMD May Be About To Crash
Pinchas Cohen | Aug 04, 2022 19:25
Many market participants concluded that Intel's (NASDAQ:INTC) disaster would be Advanced Micro Devices' (NASDAQ:AMD) boon.
Perhaps in the same way that Samsung's (KS:005930) devices catching fire provided Apple's (NASDAQ:AAPL) iPhone sales a boost in 2016.
Intel's Q2 sales dropped from $19.6 billion to $15.3 billion year-on-year (yoy). AMD posted a 70% yoy jump in its quarterly revenue to a record $6.6 billion. In addition, operating cash flow exceeded $1 billion.
But AMD did join Intel in warning that the PC market, which surged during COVID-19 lockdowns, was falling. Accordingly, AMD provided weak guidance for Q3 due to the spending slowdown driven by sky-high inflation and aggressive monetary tightening.
What does this mean for the stock? If it follows its trading pattern, I expect it to lose at least two-thirds of its value.
AMD completed an H&S top between August 2021 and April 2022. The stock confirmed the neckline's resistance this week, having climbed above it only to fall back below it. Remember that a weekly price is ultimately judged based on its close at the end of Friday's trading. Also, in late May, bulls managed to bid prices back above the neckline. However, bears drove them back hard in early June. Bulls tried again, with a five-week straight rally, but so far, the neckline is holding.
Based on its height, the implied target is $34. However, there may be other bulls waiting at the $74 level, the lows of September and November 2020, and May 2021. That support area will likely coincide with the long-term uptrend line since the 2018 low, providing significant support.
However, if H&S follows through and the price falls below that level, it will have created a massive H&S top since August 2020, and based on height, the stock's target is $17.
h2 Trading Strategies/h2Conservative traders should wait for the price to develop a long red candle, then short a corrective rally.
Moderate traders would short after the long red candle.
Aggressive traders could be short now.
Trade Sample
- Entry: $100
- Stop-Loss: $110
- Risk: $10
- Target: $70
- Reward: $30
- Risk-Reward Ratio: 1:3
Disclaimer: The author currently does not own any of the securities mentioned in this article.
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