AMD’s Surprising Disruption — What to Watch | Don’t ignore this chart!

If you ran a StockCharts Gap Ups scan on Thursday, chipmaker Advanced Micro Devices (AMD) would have been on the list. The company’s failure to meet earnings expectations for the fourth quarter of 2023 (though it beat revenue) may have left it underwhelming, but the price has bounced back quickly since then. Fundamentally speaking, data center and client services make AMD a fundamentally solid buy, especially when considering AI.

The gap from the post-earnings low shows that the bulls see the retest of the low as a fundamentals-based buying opportunity. But is AMD technically a good buy? Let’s start with a long-term view of AMD’s price action.

Chart 1. AMD’s weekly chart. The current year-long rally has been halted in a two-month rectangular pattern.

OpenAI’s introduction of ChatGPT has created a turbulent environment for AMD, which has become a driving force and pressure on the chipmaker’s future prospects.

Perhaps this describes the company’s three-year history. perform poorly In its own industry (semiconductors), this is likely because Nvidia (NVDA) has emerged as the top AI chip maker since the commercial debut of ChatGPT. However, as you can see in the weekly chart above, AMD has outperformed the General Technology sector (XLK) by nearly 29% and the S&P 500 ($SPX) by more than 55% over the same three-year period.

AMD prices, which have reached all-time highs over the past few months, have bounced back within a narrow range, forming a two-month rectangular top.; last week ended with a top Indicates uncertainty in the market. And that indecision is what led the stock to where it is now.

Chart 2. AMD’s daily chart. There are two ways to trade them, depending on whether you want to take advantage of short-term or long-term opportunities.

The gap that appeared during the Gap Ups scan turned out to be a normal gap.. Simply put, it is likely to be filled and usually insignificant (Different from churn, runaway, and burnout gap)

Swing Trading AMD’s Rectangular Breakout

What you want to focus on instead is the top of the rectangle. Rectangular chart patterns can be bullish or bearish depending on market sentiment and the direction of the breakout. According to Thomas Bulkowski’s statistics…

• The average rise/fall is 51%/13%.
• A return to the breakout level (within 30 days) is 66% on the upside and 64% on the downside.
• The price target achievement rate is 78% up and 54% down.

And how is the target price measured? Calculate the height of the pattern (lower price minus the highest price), add that number to the highest price (for a bullish target) and subtract a number from the bottom of the rectangle (for a bearish target).

The top of the AMD rectangular pattern is approximately $184.90 and the bottom is approximately $162. This gives you a height of $22.90. Based on the goal calculation above, we get the following goals:

Please note that these targets represent 100% of the measured movement. Some traders can even make profits of around 60% (it really depends on the trader).

• $207.80 – Upside target
• $139.10 – downward target

Stop loss levels are relatively deep. This is because some traders may place a stop loss at the opposite end of a rectangular breakout.

But what happens if you are bullish and looking to enter a long-term position?

Buy the dips to hold for the long term

Check out the 50-day simple moving average (SMA)., Ichimoku Cloud, Money Flow Index (MFI)and MACD.

• Like the volume-weighted RSI, the MFI shows bearish divergence and a significant decrease in buying pressure, indicating a downside is likely (but we don’t yet know how deep and whether a break below the rectangle will occur).
• The 50-day SMA and Kumo provide various supports to anticipate a bullish reversal (wait for any signs, such as candles or volume, of a bounce and strong bullish momentum).
• Finally, there may be support for a price event where the MACD crosses its signal line, possibly signaling a bullish reversal.

conclusion

An early Gap Ups scan may have warned of a potentially bullish situation for AMD, where fundamentals are also favorable. However, if you look at the big picture on a weekly scale, you can see congestion over large areas (this is ~can do It indicates a certain level of market indecision) and ends with a top shape (which more clearly indicates indecision). A rectangle can be broken in any direction. And this indecision reflects the technical versus basic situation. So, as Jim Cramer famously asked, is this “investing” or “trading”? Whatever you decide, strategies for both are outlined above.