By Matt McCallMay 25, 2017
Advanced Micro Devices (AMD) has been on an unbelievable rally over the last 14 months, soaring more than 700% from its January 2016 low to a decade high this February. It consolidated those gains from there, and has been on quite the rollercoaster ride over the last month.
The stock initially got hit on earnings. The fiscal first-quarter numbers were basically in line with expectations, but forecasts for gross margins weren’t as positive as many had been looking for. The shares gapped 24% lower as a result and hit a low right around the 200-day moving average (the red line).
AMD attempted to rally following buzz of a licensing deal with Intel (INTC), climbing as high as the 50-day moving average (the blue line) before once again falling as those rumors were put to rest. The stock is now approaching its post-earnings low near the 200-day moving average, which is a level it has held above for more than a year, and the action suggests that AMD will retest support in the coming weeks.
There are two ways to view this. An aggressive investor could see a pullback to the 200-day as a short-term buying opportunity as long as it doesn’t come on heavy volume. However, any close below the indicator would be a sell signal, and both the chart and my gut are telling me that AMD is likely to breach the moving average at some point, which would lead to a larger downtrend.
The company’s one saving grace would be the announcement of some sort of deal with Intel — or something comparable. That’s a long shot, though, which is why I view AMD as nothing more than a short-term trading vehicle. Its valuation remains extremely high and at this point in time I do not believe it warrants a double-digit price.
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