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Trade of the Day: Be Careful in Advanced Micro Devices, Inc. After Earnings

Serge Berger

Semiconductor stocks as a group had a difficult day on Thursday as a broad-based sell-off in this space pushed many of these stocks lower. In my eye however the next major catalyst are the upcoming earnings reports. For Advanced Micro Devices, Inc. (NASDAQ:AMD) the earnings report will hit on April 25 after the close of trading for the day. The stock currently trades at a critical juncture where a trade may be setting up following the earnings report.

As a reminder, it is estimated that roughly 60%-70% of a stock’s movement over a 12-month period can be attributed to its post-earnings moves. From a trading perspective, this spells opportunity, particularly if one looks to position trades once the earnings report has come out.

AMD Stock Charts

Click to Enlarge

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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

A look at the multiyear weekly chart of AMD stock reveals that a sharp rally took place in 2016 that broke it past its 2010 highs. However, by February 2017 the stock started to stall and a few months later in July 2017 it marked the chart with a double top. Since then the stock has only made a series of lower highs and lower lows, which through the lens of technical analysis does not give me the warm fuzzies.

At the same time, it is noteworthy that the stalling and backing and filling by AMD stock over the past 12 months has brought it back to a former area of technical resistance around the $10 mark as I highlighted with the blue bar. The question now is whether this area will act as support for a rally.

Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, note that a couple of weeks ago AMD stock on an intraday basis broke below some support that had held since early 2017. The stock then rebounded and never notably closed below support. However this does remain a concern.

At the bottom of the chart in blue I pegged AMD stock versus the semiconductor stocks as a group. Here we clearly see that the stock has been a notable underperformer since early 2017.

So, what’s the trade you ask? If upon next week’s earnings report AMD stock can stage a notable rally of at least a few percentage points and sticks a landing on a daily closing basis then the stock may indeed be in for a bounce back to the $12 area or higher.

If on the other hand the stock fails to rally then options traders could look to sell out-of-the-money call spreads for income.

If you would like to learn my favorite income strategy for trading stocks like AMD then please join me on Tuesday for a special presentation for InvestorPlace readers. Register here.

Check out Anthony Mirhaydari’s Daily Market Outlook for April 20.

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