Trading ideas based on technical analysis can be divided into two main categories: trend following or mean reversion. Most of the work we did last year within CNBC Pro was profiling trend following strategies. We’ve listed dozens of potential bullish pattern breakouts, and they’ve been more likely in the bull market thus far in 2024. It means being successful. However, even the best-performing stocks will always underperform. In such cases, it is not recommended to try to catch a falling knife. Recessions are often more severe and develop more rapidly than previous economic recoveries. In other words, there’s no reason to guess when momentum will build, if at all. However, if a declining stock washes out or falls to a confluence of support, the risk-reward ratio can become favorable. And when that happens, we can turn to mean reversion strategies. AMD currently meets that criteria. First, let’s take a look at what happened to the stock price. AMD has had a very difficult time since its spike and monster turnaround on March 8th almost nine months ago. The stock’s high-to-low decline from the August 5th low was -46%. And while AMD is currently below that August low, it hasn’t been able to garner the kind of upward follow-through it showed from November 2023 to March 2024. But along the way, AMD experienced two very large average rebounds, totaling +32% and +44%. And with the stock hovering above the 130 zone in recent weeks, it could be poised for further upside. The previous two declines were severe enough to create oversold conditions in the company’s 14-day RSI (sub-30) in both April and August. Recently, this indicator has remained above the 30 threshold, indicating that momentum has not turned as negative this time. That’s a potentially constructive sign. If this rally continues, the initial target will be closer to $170. The last two bounces didn’t allow for new highs, so AMD had to do some extra work from there. If this upside target is achieved, the next step would be for the stock to form a traditional bullish pattern, which has been absent throughout most of 2024. If we zoom out, it’s clear that AMD is also respecting two long-term trend lines (two lines have been around 130 in recent weeks). It has converged around the area. That is the cluster of support mentioned above. So far, AMD has respected that zone and will now use that hold to expand to higher levels. The green horizontal support line is the same line where the stock rose again in December 2023 and more recently in August and September 2024. We know that it has dominated the semiconductor space for the year, but AMD has matched NVDA’s rise from its October 2023 low to March high, with both stocks up about 145% over this period. The bottom line is that AMD has seen exceptionally strong positive momentum in the past, and if traders decide that AMD is truly ready to execute, trend-following money will return to the stock. Disclosure: All opinions expressed by contributors to CNBC Pro (owned by Nvidia) are solely their own. The content above does not reflect the views of UNIVERSAL, its parent companies or affiliates and may have been previously disseminated on television, radio, the Internet or another medium. Policies apply. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any security or other financial asset. are general and do not reflect each individual’s unique personal circumstances. The above may not be appropriate for your particular circumstances. You should strongly consider seeking the advice of your own financial or investment advisor before making any financial decisions. Please click here for full disclaimer.
Charts show this chip stock could be poised for a catch-up trade with Nvidia
By NvidiaDaily
