AMD’s (NASDAQ:AMD) Current Market Strategy View (Technical Analysis)

Advanced Micro Devices, Inc.NASDAQ: AMD) had a great success, reaching record highs amid strong activity in the technology and semiconductor sectors. However, recent market volatility and AMD technology suggest caution. This article discusses the short-term business opportunity, highlighting the importance of setting stop losses and actively managing risk. It considers the broad trends of the market, including the possibility of further decline despite short-term rebounds, and emphasizes the need for a careful approach to managing the current market environment.

A Macro View

The technology sector outperformed all other sectors of the US economy last year. With strong expansion led by companies in the semiconductor and computer hardware industries, technology companies have reached historic highs, supported by global growth trends associated with rapid when digital and, especially, Artificial Intelligence. [AI] and its many uses. However, the criticism received in the past few weeks has shown another burst of optimism, reminding everyone how quickly the market can change course, while today, the major indexes are back again near all-time highs.

Not every stock in the semiconductor industry is backed by investor confidence, as seen in the performance of NVIDIA Corporation’s (NVDA) (NVDA:CA) stock. Intel Corporation’s (INTC) (INTC:CA) stock is now trading as high as it was in 2013, Wolfspeed, Inc. (WOLF) is heading towards an All-Time-Low. [ATL]while Micron Technology, Inc. (MU) saw its value decline by more than 45% during July, after marking a new All-Time-High. [ATH] towards the end of June.

The VanEck Semiconductor ETF (SMH) completed a five-wave streak, which began in December 2018 and led to an incredible performance of 700% until July 11, 2024, where a correction occurred, leading to a loss of 28%. value, and bring the price to its EMA55, a long-term support level. Meanwhile, SMH has recovered, reaching 61.8% retracement of that correction in a stable “V-shape”, while now, it is not certain whether that recovery will lead to a high or if, rather, industry. it will struggle to continue its best performance.

Divergence of Moving Average Convergence [MACD] the momentum indicates that there may be more room for a pullback, while a positive cross could increase the chances of seeing the SMH reach the top. The relative strength of the semiconductor industry index to the broader equity market, represented by the iShares Russell 2000 ETF (IWM), remains positive despite the sharp fall that caused this index to change its trend. Volume On Balance [OBV] it suggests a potential peak in buying pressure, as it remains firmly above its 21-day moving average.

Where are we now?

In my last AMD article, published on March 20, 2024, I downgraded the stock with my view of an imminent correction.

“While the current price action may only indicate a consolidation phase before higher levels, my main position expects a correction after the two higher movements seen since October 2022 .”

I described the possibility of AMD reaching prices around $200 but highlighted the high probability of seeing the stock return to support levels.

“AMD would break the support of the price range, which could lead to $157 as the first level, followed by $145 and $133 as the next targets”.

The stock rallied two weeks later, ending with a positive shooting star, as shown on AMD’s weekly chart. This solid price action resulted in a new ATH at $227.30 and is highlighted by two gaps marked before and after the upper bar. The two gaps suggest a major reversal, which made the stock bounce back well to reach a performance of 78.60% measured from the second leg up, which started on October 26, 2023, and it almost reaches 61.80% measured from the bottom in October 2022. .

The stock has advanced and is back in the middle of the trading area defined by $132.83 and $164.46. Crossing EMA8 below EMA21 and price below EMA21 confirmed a short-term decline, but recent price strength avoided a longer-term crossing. The correction was overdue, but even though these points were seen from AMD’s weekly chart, it is important to zoom in and identify potential opportunities or threats on the daily chart. This period of time will provide a more detailed analysis of the recent correction and the ongoing reversal, with the ultimate goal of identifying possible developments in the near future.

What’s next?

A deeper analysis of AMD’s daily chart reveals the formation of a descending channel, from the ATH and defined by the peak formed in July. These lows were indicative of tiresome buying pressure, where buyers had to throw in the towel and let the stock slide until the end on August 5, 2024. The real advance is supported by the crossing of AMD’s MACD, which made the stock bearish. beat its EMA200, reaching its EMA144 which corresponds to the monthly pivot point at $155.27. A significant achievement, which provides further opportunities for improvement in the short term. Despite the recent recovery, the relative strength of the stock is still weak compared to the technical index, represented by the NASDAQ Composite Index (COMP: IND).

AMD is in a downtrend, where it crossed its central line as it continues to move towards important price levels. The probability of seeing the stock testing the upper band of the channel is relatively high, given the momentum highlighted by the rising MACD. Key to this development is the sustained victory of the weekly pivot at $155.27. If the stock can reach this, the next price level would be $175.75, which could see AMD sweep above the channel in an exit attempt. A possible test to the ATH can be considered if the price overcomes $187.28 and breaks the nearest resistance at $188.17.

However, the recent run has not been accompanied by a significant increase in volume. Only a few sessions of the market recorded a low price, which led AMD to close above its weekly range of $155.28, while increasing volume has been seen on distribution days. Investors must pay attention to these factors, as AMD stock needs support from institutional investors to climb frequently, and this participation is shown in abundance.

My basic situation AMD is testing the area around $165 and the top of the channel, where the stock can be resisted from continuing down to the annual pivot point at $119.50 and to the lower part of the developing channel. To reach the ceiling of the channel, the stock must overcome the recent doji candle at $162.04, as this may signal a reversal. Therefore, as a trader, I look closely at the opportunity to sell in AMD, perhaps to $ 164.46 or, if the momentum continues, to the upper group of the channel. Traders familiar with this strategy and strong risk management can consider shorting the stock at the levels discussed, as I set my stop loss above $190.

In another caseAMD will continue to rise and break through the upper resistance towards its ATH. Here, apart from the ceiling of the station, the correct levels between $187 and $188.20, as well as between $208.50 and $210.50, are very important and should be observed carefully, since the reaction of the stock price can suggest to continue or reject this process.

Implementing a stop loss strategy can be wise for investors who have joined recently and want to protect their profits. Another option is to place a stop loss below the bottom of the trading range, preferably below $128 or below $119. Alternatively, the sensitive stop loss can be placed below EMA200 or EMA55, and the latter allows for less risk tolerance. These measures can help reduce potential losses if AMD’s price fluctuates.

While I continue to recognize AMD’s potential in global growth trends, the observed price action reflects a more cautious environment. From a technical and short-term perspective, the risks outweigh the opportunities, which prompts me to continue to place AMD as a sell position.

Important point

Technical analysis is an important tool for investors, providing guidance rather than guaranteed results, like using a map or GPS for navigation. It serves as a strategic guide in my trading process that guides me through the challenges of the stock market, using techniques based on Elliott Wave Theory and Fibonacci principles to evaluate potential outcomes in follow the opportunities. By examining factors such as sector, industry, and price performance, technical analysis helps investors confirm or challenge potential data to assess an asset’s position and estimate potential outcomes in detail. .

The technology sector, especially in semiconductors, has seen significant growth driven by digitalization and AI, which has reached high rates. However, recent revisions reveal weaknesses. The semiconductor industry’s benchmark has shown volatility, and recent volatility has been unsettling. After hitting a new all-time high, AMD stock is now in a bearish trend, with potential to decline despite short-term rebounds, which is why I continue to put AMD as a selling point. Investors should consider hedging strategies, as the risks currently outweigh the opportunities.