Advanced Micro Devices, Inc. (AMD) is up just 1% so far in 2021, but not without a huge buying opportunity at its low posted on March 18, 2020. The stock is trading above its quarterly pivot at $91.37, which is the key level to hold on weakness.
Traders and investors had the technical signals to capture a major portion of a 163% gain from $37.66 to $99.23. Today, with the stock 6.6% below the high, the upside potential appears limited. AMD stock is not cheap, as its P/E ratio is elevated at 81.93%, according to Macrotrends.
The Daily Chart for AMD
The daily chart for AMD shows that the stock is above its 50-day and 200-day SMAs at $92.00 and $76.08. This is a continuation of the golden cross that was confirmed back on June 13, 2018. Note the buying opportunity that occurred on March 18 at its 200-day SMA, then at $37.66.
After AMD set the high of $99.23 on Jan. 11, the stock traded as low as $84.66 on Feb. 1, a decline of 14.6%. Between these dates is the quarterly pivot at $91.37, which has been a magnet. Above the chart is a monthly risky level at $109.26. This level goes away at the end of February. The chance of trading up to this level by the end of the month is near zero given the neutral weekly chart below.
A price gap below $91.37 indicates risk to the lower two horizontal lines. The lowest level is the annual value level at $59.55. The middle horizontal line is its semiannual value level at $70.54.
The Weekly Chart for AMD
The weekly chart for AMD is neutral. The stock is above its five-week modified moving average of $90.05. AMD remains well above its 200-week SMA, or reversion to the mean, at $34.58. Note how the long-term bull market for AMD began from this moving average back in April 2016, when the average was $3.09.
The 12x3x3 weekly slow stochastic reading slipped to 57.13 this week, down from 62.59 on May 5. This measure scales between 00.00 and 100.00, with a reading above 80.00 overbought and a reading below 20.00 oversold. A declining reading is a warning.
- Stochastics are a favored technical indicator because they are easy to understand and have a high degree of accuracy.
- Stochastics are used to show when a stock has moved into an overbought or oversold position.
- It can be beneficial to use stochastics in conjunction with an oscillator like the relative strength index (RSI) together.
Trading strategy: Buy AMD stock on weakness to the monthly and quarterly value levels at $46.86 and $45.50, respectively, and reduce holdings on strength to its weekly risky level at $55.48.
Technical guidelines: The closes on Dec. 31, 2020, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels were calculated based upon the last nine closes in these time horizons. Monthly levels for February were established based upon the Jan. 31 closes. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels remain for the full year.
My choice of using 12x3x3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.