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Trading the Earnings Plunge in AMD Stock

Bret Kenwell

Ugh, it’s been a tough ride in Advanced Micro Devices (NASDAQ:AMD) lately. As if the decline in the Semiconductor ETF (NYSEARCA:SMH) wasn’t enough, AMD stock price has fallen 18.8% since reporting its third-quarter earnings. Thankfully yesterday was an up day in the overall market, otherwise Thursday could have been even uglier for AMD.

So what gives?

This name has gone from sub-$10 in April to almost $35 last month, so some weakness should be expected. But this type of fall — a 46% decline off the highs — was not expected by many. Some investors might be tempted to buy now, but most are likely deciding whether to bail ship or not.

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Let’s dig in a bit.

AMD Stock Earnings

AMD reported GAAP earnings of 9 cents a share, a penny short of expectations, on revenue of $1.65 billion. Sales came up short of expectations by $50 million and grew just 4.4% year-over-year. It’s not much of a positive, but on the plus side, AMD had non-GAAP earnings of 13 cents per share, a penny ahead of expectations.

Overall though, this wasn’t the report that investors wanted to see. Not after the big slide in stocks like Intel (NASDAQ:INTC), Nvidia (NASDAQ:NVDA) and other peers or when the semi index is getting hit as hard as it is. Investors were hoping for AMD to stop the bleeding, not add another gash.

Making matters worse, management guided for sales of $1.4 billion to $1.5 billion, short of consensus expectations calling for $1.59 billion. Cryptocurrency revenue has completely dried up as assets like bitcoin have plunged throughout 2018. It’s no longer profitable to buy GPUs to mine crypto and it’s hurting firms like AMD.

We saw this development last quarter, particularly with Nvidia coming up short on its crypto outlook. Last quarter though, Nvidia management said not to expect any sales from crypto in the September quarter. Whether analysts listen to them is a different question though.

That said, crypto was like gasoline on the fire, but it wasn’t the fire. Gaming, auto, datacenter and professional graphics are all major catalysts for Nvidia. But with Nvidia, it has much better margins than AMD, and that makes something like a crypto slowdown more harmful for AMD stock.

Despite this, the last few quarters have reflected this slowdown and it’s now all but eliminated from the forecast. AMD’s overall business is heading in the right direction and the secular winds are at AMD’s back. But where do we buy the stock?

Trading AMD Stock Price

chart of AMD stock price on earnings

AMD is the epitome of “good company, bad stock.” Just because AMD is a good company doesn’t mean its stock will reflect that any time soon though. Not after these results, poor guidance and a market climate like the one we’re in.

With that in mind, we need to know some key levels. Buying stocks based solely on the fundamentals and not even a glance at the charts is reckless in my view. The same applies for blind investing based on the charts and knowing nothing of the fundamentals. Trading is different than investing and investors need to blend fundamentals and technicals.

My big concern now is how AMD has traded post-earnings. It was good to see share bid up significantly from the lows, but AMD stock price closed below several major support levels. It gapped below and stayed below its 50% Fibonacci retracement for the 52-week range, the 100-day moving average and the backside of a prior significant trend-line (in purple).

If we use the April gap-up Fibonacci levels, AMD stock tested and was promptly rejected from the all-important 61.8% mark (black line). From the 52-week range, it closed just above it at $18.70.

I know I threw out a lot of mumbo-jumbo there, but it’s all to say that the charts look pretty ugly. For me I need to see one of two things to get interested again on the long side. Either a pullback to the 200-day moving average near $17, or a close above the 100-day moving average and AMD’s prior uptrend.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA. 

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