(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Advanced Micro Devices Inc.'s (AMD) stock is already 20% off it 2018 intraday highs. But the losses may not be over. The stock is poised to fall another 12% from its current price of around $27, based on technical analysis. Should that happen, the stock would be almost 30% below its highs. (See: AMD Stock Seen Rising to Highest Level In Decade.)
The stock has risen nearly three-fold from its lows in April, aided by better than expected quarterly results as well as production problems at Intel Corp. (INTC) involving its 10-nanometer chip.
Technical Break Down
The chart shows that the stock is approaching a technical support level of around $25.75. Should the stock drop below that, it could fall by more than 12% to its next level, which is $24. (See: AMD's Stock Seen Plunging Over 20% Short Term.)
The relative strength index (RSI) also has trended lower for the first time since this spring. This is happening after the RSI hit highly overbought levels well, indicating loss of bullish momentum.
The options for expiration on November 16 imply that volatility in the stock remains high over the next several weeks. The options at the $26 strike price suggest the stock may rise or fall by as much 21%. It places the stock in a trading range between $20.60 and $31.40 by expiration. But perhaps more important: the volume of bearish open puts is almost double that of bullish open call contracts.
Analysts expect the company to report strong third-quarter results at the end of October. Analysts estimate earnings will increase by 27% to $0.13 per share as revenue climbs 4%.
AMD's stock is well known for giving heartburn to investors and ideal short-term opportunities for traders. No matter what, the company may need to report blowout earnings on a consistent basis in the coming quarters and year to boost the stock longterm.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.