Are you a bull or a bear? Following the first quarter’s massive market rally, the question might rightfully beg asking. But when it comes to semiconductor stocks Advanced Micro Devices (NASDAQ:AMD) and Micron Technology (NASDAQ:MU), the big picture suggests a paired up buy strategy looks about right. Let me explain.
It was a standout day for semiconductor stocks across the board Wednesday. The Vaneck Vectors Semiconductor ETF (NYSEARCA:SMH) rallied 2.33%, saw its best close in more than a year and third strongest finish in its history.
Reports that a U.S.-China trade deal is at hand, strong chip demand news out of Taiwan Semiconductor (NYSE:TSM) and broker Nomura Instinet issuing a pair of sector buys made for a winning trifecta for the sector. And nowhere was that more evident than in AMD stock and MU shares.
For its part, Advanced Micro Devices enjoyed a hefty gain of 8.5%. The outsized performance was helped in part by Nomura Instinet’s buy recommendation and $33 price target. Meanwhile, Micron’s second place finish among large cap semis and 3.44% advance was nothing to sneeze at either.
But before you get concerned that Wednesday was a last hurrah of sorts following an exhaustive rally to kick off 2019 and not to mention the market’s historic decade long bull run, think again. Or better yet, look again at the weekly charts of AMD stock and Micron.
Semiconductor Stock Bu: AMD Stock
While at times over the past decade AMD stock has enjoyed the rising market tide, shares are a far cry removed from their all-time highs of $48.50 set way back in 2000. For some investors and given how well Advanced Micro Devices has been performing under CEO Lisa Su, these two factors could be the basis for looking more closely at buying AMD.
But there’s more to Advance Micro Devices shares too.
The big picture offered on AMD’s weekly chart points to a stock firing on all cylinders technically. Though that’s not to say there isn’t challenging price volatility at times. There is.
More importantly, with Advanced Micro Devices having reaffirmed its uptrend into the upper third of a very well-constructed corrective base; there’s little reason to doubt new relative highs are in the offing and Nomura will be playing a game of catch-up with its price target.
My suggestion is buy AMD today and do yourself a favor by using an initial price target of $35 for profit-taking as shares hit marginal fresh highs.
In the event our enthusiasm in Advanced Micro Devices proves misplaced, using a stop-loss below $26.50 offers practical risk management, as exposure is contained to less than 9% in this volatile stock. This exit strategy in AMD stock also allows for the tendency of gaps to get filled without being a casualty of less-severe poking and prodding from bears.
Semiconductor Stock Buy: MU Stock
The other half of our semiconductor stock pairs trade is memory chip specialist Micron. And to hedge the long Advanced Micro position, MU stock also demands to be purchased.
Similar to AMD, Micron shares have seen some rip-roaring rallies. Here too, though, MU stock has been largely shut out of the day-to-day bull of the past 10 years which has left an unforgettable mark on the broader market.
The good news, as the detailed weekly chart points at, is that despite its relative weakness, MU stock has done a fair bit of constructive testing. And with a fresh uptrend just emerging and MU having cleared the 200-day simple moving average, there’s plenty of room in our estimation for a period of bullish out-performance in Micron shares.
Of course there are risks. This is investing, after all. Two glaring potential obstacles for MU stock are the 50% and 62% retracement levels. But that shouldn’t stop investors from buying shares today.
Bottom or squiggly price line, with a volatile name like Micron which has a history of explosive and more linear-like moves once a trend is established, it’s easy to be optimistic without being overly-hopeful resistance will be overcome.
In case we’re wrong and to keep the odds of success in our favor, I’d recommend using the 62% Fibonacci level near $51 as the first target for profit-taking before setting your sights on 2018’s high of $64.66. And if we’re really off in our forecast, exiting slightly beneath last week’s hammer-like doji of $39.01 is equally smart business on a couple levels.
Investment accounts under Christopher Tyler’s management currently own positions in Advanced Micro Devices (AMD) and Micron (MU) but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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