A continuation of the fear-and-loathing trade kicked off the workweek for investors. Now though, in an oversold market, Advanced Micro Devices (NASDAQ:AMD) is looking less like a casualty of the trade war and more like a sector standout off and on the AMD stock chart. Let me explain.
Source: Matthew Rutledge via Flickr
Monday picked up right where a market drubbing last week left off, sans Friday’s miraculous late session, tweet-inspired rally. And that’s to say, the broader averages finished deep in the red. For its part, the S&P 500 slid by 2.47% as the ‘twit’-for-tat gameplay of the U.S. and China’s trade war worsened.
Driving the price action, investors are increasingly on edge after Chinese officials promised to raise tariffs on $60 billion of American imports following the U.S. increase on $200 billion of Chinese goods from 10% to 25% on Friday.
And nowhere was the selling more pronounced than in tech names like AMD stock.
The tech-heavy NASDAQ tumbled 3.41%. Meanwhile, the Vaneck Vectors Semiconductor ETF (NYSEARCA:SMH) fell by 4.64%. AMD stock shed an outsized 6.15%. That was enough to allow AMD to share the top spot for worst performance among large-cap semiconductors with peers Nvidia (NASDAQ:NVDA) and Maxim Integrated (NASDAQ:MXIM).
As a group, chip companies maintain an inordinate amount of revenues tied to China. Needless to say, with China manufacturing a good chunk of the end products semiconductors are used in, as well as being a massive consumers of those products as well, those sales are perceived as being increasingly at risk in today’s escalating trade war.
But is it really all that bad in AMD stock? As an investor I don’t see it that way, despite the financial media’s well-vocalized and distributed fear mongering that make the bear case seem inevitable. Sure, the trade war could get uglier. And that could negatively impact Advanced Micro Devices. But a trade agreement isn’t exactly off the table, and conditions could quickly become bullish.
In an uncertain environment, with AMD’s recent earnings topper in hand, a big $600 million U.S. Department of Energy contract win last week and a price chart still looking very supportive for bulls, it’s time to focus on going long, not giving up on AMD stock.
AMD Stock Weekly Chart
Are conditions perfect for this sort of bullish enthusiasm in AMD stock given the market’s amazing run from last December’s ‘the sky is falling’ trade war-driven lows? Personally, I’d want to see more investor unease or outright panic before I’m convinced buying shares outright on weakness will result in a profitable position. So, I have something else in mind.
Barring more extreme market behavior, which might still happen, there’s still a way to prepare for buying AMD stock smartly at nearby prices that is less of a guessing game and one which stacks the odds in our favor.
The strategy I’m recommending is to buy AMD stock using the weekly chart and waiting for modest upside confirmation of strength. This is accomplished by purchasing shares above last week’s high of $28.10. Given AMD’s fairly well-supported and behaved consolidation of the past six to seven weeks, as long as last week’s low of $26.03 holds, this allows investors to buy shares as the pattern’s low is confirmed.
Bottom line, despite an entry in a notoriously volatile stock, this strategy isn’t likely to trigger unless the market is actually picking up the pieces rather than scrambling to buy more technically oversold stocks like Apple (NASDAQ:AAPL) or Intel (NASDAQ:INTC). The intention is to avoid buying AMD stock during a one or two day dead cat bounce which ultimately fails. And right now that looks like smart business and certainly smarter than trying to catch a potential falling knife.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Advanced Micro Devices (AMD) and its derivatives 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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