While virtually everything is on fire and no fear whatsoever in general, the fire is especially strong on certain stocks, in particular the chip stocks. One of them that used to be dead money for years has suddenly become the Street darling. So much so that it has jumped 26 times in the past 4 years! Just for 2019, it had more than doubled while the overall market was "only" advanced by about 30%. Impressive... and very much so indeed! Needless to say, the general mood for the stock is red hot and the expectation is super high for it! I have already seen people talking about another double soon for it from here around $50.
The million dollar question for traders is of course if this is possible. Sure anything is possible, especially if the company can significantly beat its super high earnings expectation, which is due next Tue, Jan 28. I definitely don't have a crystal ball as anyone else out there and cannot predict whether or not it can beat in an unexpected fashion. Having said that, I have a habit to check its past history to see if there is something I can learn from. And there is indeed something very interesting about the stock I'm talking about AMD.
I don't know how many people have realized (probably not many) that AMD has jumped in an euphoric fashion twice in the past 25 years to the same degree......There are only two other times in recent history that the stock made parabolic moves like this - 1996 to 2000 (846%) and 2002 to 2006 (1,277%) ... As you can see from the chart, the previous two moonshots did not end up well. Actually both were disastrous, back down to the earth again after the euphoria dissipated after their peaks. Let me just present some facts based on the AMD long term chart below and you can make up your own mind what may be coming next.
· This is a long term monthly chart. As such, it takes more time to play out, usually in 6 months or more.
· Technically, the current TA setup is quite similar to the previous two parabolic moves. See the bottom two cycles on the RSI indicator. In both times before, AMD peaked when RSI was deeply in the overbought extreme on the monthly chart. Does that mean AMD is peaking as well this time? No one knows for sure of course but as the old saying goes, history may not repeat but often rhymes!
· If AMD indeed backs down from its highs now, it could be a brutal downtrend lasting for months with a potential to give up all the gains from the past few years. Certainly it won't be a straight line down but will be a lot of volatility along with it.
· One bright spot for this time is that AMD seems breaking out from its old high back in 2000. The question is if it can maintain and moves further highs from here. If so, it will be very bullish. Having said that, technically even if AMD declines 15% from the current level, one can still argue that it is still a "normal" correction and its bullish trend may still be intact as long as it can stay above the earlier downtrend line around $43ish.
Regardless what you think, it will be an interesting case to watch for AMD in the weeks and months ahead. Depending on the setup, I may share some trading ideas with my Family before and/or after its earnings. Actually yesterday I already shared one trading idea that can be profitable within a wide range regardless how AMD is responding to its earnings. Cannot wait to see the firework next week!!😎
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