Primary Chart: Bollinger Bands (Yellow Shaded Volatility Channel) with Fibonacci Levels, Downward TL and VWAPs
1. As discussed earlier this month, AMD remains in a severe downtrend at the primary degree of trend. This means that the path of least resistance on higher time frames remains lower unless and until AMD can do a substantial amount of price work and recover into the mid 80s (the area of the downward trendline shown on the Primary Chart) and preferably the $100.60 level (the .50 retracement of the 2020-2022 rally).
Supplementary Chart A: AMD's Linear Regression Channel Reflects Severe Downtrend
2. In every trend, however, corrective retracements and mean reversions will occur. In a downtrend, market participants commonly attempt to pick bottoms especially in former market leaders and darlings—and when this bottom-picking is combined with heavy short positioning that requires covering when major downside moves exhaust, ferocious bear rallies ensue. On October 11, 2022, SquishTrade prepared the following chart showing some of the powerful bear rallies that have occurred since November 30, 2022 (all-time high date):
Supplementary Chart B: Percentage Gains for Bear Rallies in AMD Since All-Time High
3. The VWAP anchored to the all-time high on November 30, 2022, shown on the Primary Chart, reveals that the downtrend at the primary degree of trend remains in effect. The lower highs and lower lows on daily and weekly charts support this conclusion, and the downward trendline—also shown on the Primary Chart in orange—has not been broken. Price remains significantly below both the orange downward TL and the all-time-high VWAP, showing the profound weakness in this former market leader.
4. Price has even fallen beneath the April 2018 anchored VWAP (shown in red on the Primary Chart above) having a price value of $61.95 on October 20, 2022. AMD's rapid decline since August 4, 2022 peaks appears to have stalled just after breaking below this VWAP. This 4.5 year VWAP provides strong near-term resistance at $61.95. This level of interest should be monitored during any bear rally and on any subsequent decline. Price may rally and whipsaw above it during a mean reversion only to fail and slice back below it.
5. Price has fallen beneath the .786 and .618 retracements of the entire rally from the Covid 2020 lows. These levels are at $64.08 and $85.54 respectively. This is significant because it reflects the strength of this downtrend. Any bear rally will meet strong resistance when rising back to these levels. Before considering these levels as resistance however, price must first break above the April 2018 VWAP (about $61-$62), and the 21-day EMA at about $63.31 as of October 20, 2022. Until the 21-day EMA and the April 2018 VWAP are reclaimed ($61-$63 approximately, the higher retracement levels remain irrelevant.
6. Some evidence of downside exhaustion appears on AMD's charts. These suggest that a short-covering and FOMO-driven rally may occur in the coming weeks between now and year end. SquishTrade hinted at this possibility recently with the following chart, showing how AMD was approaching the bottom of its downtrend channel:
Supplementary Chart C: October 11, 2022, Post Showing Higher Risk For Shorts Near Downtrend-Channel Support
7. On AMD's daily chart, RSI now shows a positive divergence despite price making lower lows. This is further evidence that shorts should be cautious and wary of a bear rally or, at a minimum, choppy action over the next few weeks.
Supplementary Chart D: RSI Positive Divergence on Daily Chart
8. The Bollinger Bands also suggest that the downward price move from August 4, 2022, swing highs may be nearing exhaustion. Note how the bands (set at two standard deviations) are contracting now, which suggests either chop or mean reversion in the coming days or weeks. The %B indicator in the subgraph also shows weakening downside price action. As price made lower lows over the past two months, the %B indicator made higher lows. This reflects that price moves were less powerful even though they made lower lows on the main price chart—when price cannot pierce the bands as deeply with each subsequent low, and when price eventually cannot even tag the band with a new low in October 2022, this shows price may be ready to consolidate or mean revert.
Supplementary Chart E: Bollinger Bands Signaling Exhaustion and Temporary Pause in Downtrend
9. For anyone trying to catch the bear rallies, watch out for false breakouts above resistance as discussed in the following linked post, showing a false breakout this month above a shorter-term trendline. When the primary trend is down, countertrend moves can be challenging and tricky, so tight stops make sense.
Supplementary Chart F: False Breakout above Resistance—Example from October 6, 2022 ________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
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Could AMD's bounce look any weaker than it is? SPX was up over 1.1% today and NDX was up 1.06%. AMD was down -.20%. The 2018 anchored VWAP shown on the Primary Chart above (red) at 61-62 has not even been approached, much less tested on this bounce off October lows.
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AMD's bounce is now flirting with the first major level -- the VWAP anchored to April 2018 lows around 61.94.
AMD broke above the short-term downward trendline (and out of the price channel defined by that trendline. But it's still looking a bit weaker than the rest of the market generally.
Watching this 2018 Anchored VWAP at $61.95. This VWAP, interestingly, aligns with the measured move target of $61.63-$63.24. If AMD is to reverse lower, this range of $61.63-$63.24 makes sense. But markets don't always like to make sense, as this year's sharp rallies and declines have shown.
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And the 21-day EMA at $62.33 falls within in the same area as the measured move target of $61.63 to $63.24
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It's important to remember just how far bear rallies can run. This is why my original post contained the following chart (copied and pasted again below):
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With earnings being reported after hours, AMD should be expected to move in either direction substantially.
AMD continues to struggle at the 2018 VWAP (shown in red on the Primary Chart). On Friday last week (10/28), AMD had a weekly and daily close above the 2018 VWAP. Today, price fell right back below that 2018 VWAP, which now shows a value of $61.93.
For now, AMD remains in a tricky and uncertain spot—not a surprise given that earnings reactions are random and uncertain, especially in this market (after earnings, several FAANG stocks were hard hit last week and a some rallied unexpectedly).
Even the daily candle (so far) reflects this uncertainty:
AMD's short-term uptrend remains valid until broken in either direction, as price remains in the center of the parallel channel off the YTD lows (see below). Further, AMD remains above the 8-day EMA and below the 21-day EMA. AMD rose above the 21-day EMA last week, but failed back below it today.
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AMD reported results after the close today. Guidance was disappointing.
EPS was .67/share vs. .68/share expected, so a small miss there. Revenue missed as well—5.57 billion vs. 5.62 billion expected, a miss of about $50 million. Although revenue was up 29% YoY, net income was down -93% due to an acquisition. Full year revenue guidance was lowered by about 3 billion from where it was forecasted in August 2022 according to financial media. In other words, in August 2022, full year revenue was forecasted at $26.3 b, but now it is forecasted at $23.5 b.
AMD also noted weakening PC sales this fall. This is consistent with broader economic signs (yield curve inversions, PMIs falling, etc.) of a growth slowdown / recession.
Why is the stock up after hours? AMD made comments about its chip server business growing in coming quarters. It seems that investors in this season are looking for any reason whatsoever to be bullish. This makes me wonder if something totally standard that the Fed Chair says tomorrow will be interpreted as dovish to support a few more days of rallying, similar to July / August bear rally.
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After struggling with its 2018 VWAP (yellow), AMD has now reclaimed it. Next major resistance levels are a huge gap from $64-$68 and a Fibonacci level at $69/$70 (depending on log / linear charting).
But with CPI on Thursday (and previous market reactions to CPI), AMD's rally should be viewed as a tenuous event that could fail at any time. It could fail here, and it could fail higher at $70. Be careful and prepared in this volatile market!
Trade closed: target reached
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1. On Oct. 20, 2022, AMD closed at 57.77 when ST wrote that "some evidence of downside exhaustion appears on AMD's charts," and forecasted that "such evidence "suggests that a short-covering and FOMO-driven rally may occur in the coming weeks between now and year end."
2. The technical basis for this call was positive / bullish divergences in RSI and %B (a Bollinger Band derivative indicator), and the fact that AMD reached the lower support (return line) of a downtrend channel. ST reasoned that "in every trend, however, corrective retracements and mean reversions will occur. In a downtrend, market participants commonly attempt to pick bottoms especially in former market leaders and darlings—and when this bottom-picking is combined with heavy short positioning that requires covering when major downside moves exhaust, ferocious bear rallies ensue."
3. Since this forecast in mid-October, AMD has rallied all the way up to its downward TL from all-time highs at $79.16. So the forecast worked out, albeit the rally went further than expected (as usual). Now the downtrend will either resume or be broken—AMD is at is moment of truth. Odds favor the downtrend resuming.
4. If readers are interested, let ST know whether to post more updates if confirmation back to the downside occurs.
5. Finally, one more upside resistance identified in the main post above is a long-term .618 retracement at $85 (the .618 retracement of the entire rally from the Covid 2020 lows). With price having reached $79.16, this major resistance is only a few dollars above the high, and it remains strong resistance. (It's doubtful that AMD will climb above $85 in the short-term, but anything can happen in these volatile times.)
It's a great company, but I agree with our mutual opinion - it's going to tread water for a year. I don't think it will take the beating that I expect from other tech/growth companies - what I like about Intel/AMD/NVIDIA/QCOM/Nokia/etc., is the intrinsic value. They have real technology with a significant "moat" around their intellectual property, and if you drop the product on your foot (in sufficient quantities), it hurts. I tend to like physical assets more than website coding. The software improves productivity, but ultimately, someone else can easily come along with a better mouse trap.
New competitors for the chipmakers need chip designers (they definitely cost more than a dime a dozen) and chip foundry/fab plants are enormously capital-intensive. Let's not call it a "monopoly" - but it's definitely an oligopoly without many future up & comers. I'm a buyer on the other side of whatever this is.
SquishTrade
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@NordicVetMBA, Haha, like your reference to the tangible nature of the goods by considering how it would feel dropping it on one's foot.
I saw a video a while back of NVDA's CEO pulling a data-center chip out of an oven. It weighed over 50-60 pounds. I think that would smash a foot into bits!
I was just writing up an analysis on NVDA. Technically, it looks really weak, though the rally can continue . . . I agree with your sentiment, they're not ready yet for a long-term buy and hold!
And thanks for the compliment
NordicVetMBA
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Food for thought...
Intel is trading at an 8.97 PE with $3.26 EPS; QCOM is a 10.56 PE with $11.43 EPS; - AMD is still at a 26.07 PE and $2.41 EPS. Intel obviously took a hit with Apple switching back to Apple-designed Silicon; but if comparing AMD to its peers, AMD still looks expensive (by double).
I'm not an analyst - just a private/family investor - but I wouldn't touch it until it hits about $26-$30 and EPS is Intel and Qualcomm.
SquishTrade
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@NordicVetMBA, Thanks for those multiple comparisons -- very interesting From an investment standpoint, I can see your point and agree with you. This is not an investor's market at all in these sort of names (and semis have been especially weak) with the 10-year climbing so much this year. So growth / tech names are in a process of multiple compression, which arguably is not complete.
One explanation for the difference in multiple b/w AMD and Intel and QCOM is the growth rate for EPS and revenue. For example, in 2021, when rates were still low, there was a sound reason for a difference in multiple I believe. But with rates having risen dramatically, and unlikely to fall in the coming months, present value of future cash flows falls (b/c discount rate has risen), which makes the growth rate less of a factor -- I think that's the argument for why growthy tech stocks suffer as rates rise.
On a different note, though, many traders here trade short-term swing moves in AMD. If you look at the chart below with some of the bear rallies and declines, the profits can be exceptionally good if timed correctly, even if only a piece of the move is caught using options spreads or combinations to limit risk.
NordicVetMBA
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@SquishTrade, Agree - I think there are short-term trend/swing opps on many growth stocks right now. Your trend analysis is spot on, but I think AMD has another major down leg ahead. Assuming investment gets much more difficult for a while, investors (the ones that actually make money doing so) will refocus on the fundamentals, and issues like the one I raised are going to impact the price. The amateurs are going to run for the hills and not come back for years.
It's interesting that you mention the growth prospects of AMD - and I don't disagree, but I've always thought of AMD as the second-choice chip for cheap laptops and Chromebooks. Their GPU product line pulled them out of that rut, but realistically- I think it has a lot of pricing headwinds (but is an excellent and well-run company). COVID lockdowns and easy/free money led to a lot of over-consumption in the consumer space for game consoles, video cards, etc. Those sales numbers surged during COVID, and people tend to keep that stuff for 2-4 years before replacing it, so that overconsumption is going to cannibalize from what should have been predictable sales volume in 2022/3/4.
They had great YOY growth numbers, but assuming most of those were GPUs & crypto mining chips, the bell has been rung, so to speak. Crypto is in the doldrums and we already mentioned the GPU difficulties. If you look at crypto, in particular, the prices (for coins) are sort of what they are because the processing power (and energy) needed to create one usually consumes a lot of what the coin is worth. I looked at building a crypto miner once (for a friend) and even with my 10,000 watts of solar - doing some calculations on the retail cost for power, cooling, equipment, etc.. it is surprisingly hard to make a profit with that -and that's why most of them are sitting in far-flung places of the world with their own hydro plant next door.
Recessions are really good for a few things.. and sadly, the Federal Reserve tends to tinker with the monetary policy to prevent them, but they are very useful for right-sizing stock prices to revenues and earnings, enabling the market to pick the winners and losers, and gets rid of the junk business ideas that only seem to exist by soaking up investors' money. AMD is not in that crowd, but many are - and I suspect a lot of those [crappy companies] have AMD in their supply chain somewhere.
Love our conversations - primarily because very few put in the research that you do.
SquishTrade
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@NordicVetMBA, I enjoy our conversations too! You have excellent knowledge of fundamental issues, you write almost like a fundamental analyst ;)
As far as the easy money (Fed QE and several rounds of fiscal-policy driven stimulus checks) during the pandemic being a problem across the board, I agree and have been aware of it. But the way you connect that to AMD and other tech companies' sales is insightful. You should take the basic content from your comment and turn it into a post on AMD! :) Crypto and semi bulls (the fanatics really, the ones who can't see any chart without a massive up arrow at the end) will troll your post, but serious investors and traders should be interested!
SquishTrade
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@NordicVetMBA, As of August 2022, YoY revenue growth was 70% for AMD. My guess is Intel is nowhere near that figure—i think it's been between 1% and 8% revenue growth YoY for a while. Will that still matter with rates being high, staying high, etc.? Probably not. And there may already be signs that growth rate is coming down, I'm not sure b/c I don't follow fundamentals near as much as technicals. But great points to think about, thanks for raising them
@SquishTrade, I am usually sort of giving about a 20% discounted value to previous sales and predicting where their next quarter & quarter after will be. I usually intend to buy for a year, but will set failsafe triggers to dump the symbol if conditions change.
Coming out of COVID is a totally different animal though. People (consumers) were getting a lot of money for not actually working, and over-consuming. Now, with restaurants, travel, and high food & gas prices, household budgets have shifted dramatically. Demand for consumer tech products has definitely diminished - and I think some companies will suffer more than others. It depends on their product mix and exposure to those shifts.
It's a great company, but I agree with our mutual opinion - it's going to tread water for a year. I don't think it will take the beating that I expect from other tech/growth companies - what I like about Intel/AMD/NVIDIA/QCOM/Nokia/etc., is the intrinsic value. They have real technology with a significant "moat" around their intellectual property, and if you drop the product on your foot (in sufficient quantities), it hurts. I tend to like physical assets more than website coding. The software improves productivity, but ultimately, someone else can easily come along with a better mouse trap.
New competitors for the chipmakers need chip designers (they definitely cost more than a dime a dozen) and chip foundry/fab plants are enormously capital-intensive. Let's not call it a "monopoly" - but it's definitely an oligopoly without many future up & comers. I'm a buyer on the other side of whatever this is.