AMD Broke Out... Now What??!!... An Earnings Story!!
AMD appears to have confirmed a technical breakout on the Daily chart. The stock has experienced a meteoric rise since its last earnings report(10/30/23) moving over +20% in just a few short days. This extremely BULLISH price action has not only been fueled by a great earnings report, but there is also a major news catalyst driving the stock price higher. The catalyst has been strong enough to boost the price despite weak 'Q4 forward guidance. There are talks of a new AI chip that may allow them to compete with the likes of NVDA, the main player in the semiconductor industry. AMD may never surpass NVDA in stature however, AI projects to be the biggest technological innovation since the implementation of the internet making being the second, or even third biggest player in the space not a bad spot to be in. The need for semiconductors in general will most likely dominate the future resulting in plenty of profits to be made.
The recent price action of AMD is really a tale of earnings. Zooming out to the Daily chart and this phenomenon can be easily identified. The story really began with an earnings miss on 11/01/22. A few days before the release of this report AMD would set what ultimately turned out to be its 52 wk Low. This was preceded by a precipitous drop from the ATH of $164.46 set on 11/30/21. This rise to a new ATH and subsequent fall to a new 52 wk Low ironically occurred during a streak of nine consecutive earnings beats. Further analysis and one is able to discern that price action broke down over a series of DBL TOP patterns before recovering in a series of a DBL BTM patterns. This behavior may prove to be foreshadowing, but I digress.
Fast forward to 11/3/23 AMD has just closed above the neckline of a DBL BTM pattern, after completing a series of DBL TOP patterns, in the midst of four consecutive earnings beats. History may not repeat itself, but it has a tendency to rhyme. The stock has also broken through the top of a Descending Channel(D) that it has been trading in since the start of the series of DBL TOP patterns. The upward momentum has been so strong that the stock broken and closed above the 200MA(D), 100MA(D), and 50MA(D) over just the last three trading sessions, making a new local high in the process. The stock has been on a rocket ship since finding support at levels identified and explained in a previous idea(see AMD Earnings Breakout or Breakdown).
As for this idea. The series of DBL TOP patterns is represented by the black curves above the would be tops, with their respective necklines identified by the small black circles seen on the chart. The DBL BTM pattern is represented by the green curves found at the would be bottoms with the neckline also identified with a circle as well. The red curves represent a failed DBL TOP even after a closing confirmation on the Daily chart below what would have been the neckline. Proof that the markets can do anything at any time therefore, you can never let your guard down. However, it should be noted that this failed DBL TOP pattern comes after two successfully executed DBL TOP patterns, and a third that could be considered successful depending on your perspective. The third one just happened to occur near the 200MA(D) which has historically been strong support for any asset. Regardless the diagnosis it still amounts to a series of successful BEARISH patterns that have begun to fail, possibly indicating BULLISH price action moving forward.
Bull Case
1. Strength above $111.31. If the DBL BTM pattern is to play out, this area would be the neckline of the formation.
2. Strength above the top of the Descending Channel(D) in which the stock has been trading for the past three months or so. The stock has closed above the top of the channel with momentum. It would not be shocking to see the stock retest the top of the channel.
3. A retest and bounce from the local low, creating a higher low. This would be a BULLISH indication as the stock has already created a higher high signaling the potential start of an uptrend.
Bear Case
1. Strong rejection at the stock's current levels. Such price action could imply yet another DBL TOP formation, leading to further downward momentum.
2. BEARISH price action, chart patterns, or strong rejection at the yellow rectangle drawn above the current price level. This area represents the Golden Zone of a BEARISH Fib Retracement from the local high of $132.83 to the local low of $93.12. This area serves as a strong area of resistance and could serve as a logical area of rejection. Especially given how far and fast the stock has run since earnings.
3. A break below the DBL BTM pattern all together. This would be extremely BEARISH and could signal a falling knife situation. Under these circumstances bias should switch to the downside and the stock should be monitored for short opportunities.
*As things currently stand, bias is to the upside, with a guilty until proven innocent approach. The market has been extremely erratic, and rallies have been hard to trust. The stock has only created its first higher high, after trading in a clear downtrend(a series of lower highs and lower lows).
*RSI(D) displays a DBL BTM formation that has been confirmed with a break of the neckline.
*Watching AVP(52 wk Low)(POC), Moving Averages(D), Descending Channel(D), Key Levels(black rectangles), Ascending Support(red trendline), Bollinger Bands(D), and the AVWAP(52 wk Low) at their respective levels for additional confluence.
The recent price action of AMD is really a tale of earnings. Zooming out to the Daily chart and this phenomenon can be easily identified. The story really began with an earnings miss on 11/01/22. A few days before the release of this report AMD would set what ultimately turned out to be its 52 wk Low. This was preceded by a precipitous drop from the ATH of $164.46 set on 11/30/21. This rise to a new ATH and subsequent fall to a new 52 wk Low ironically occurred during a streak of nine consecutive earnings beats. Further analysis and one is able to discern that price action broke down over a series of DBL TOP patterns before recovering in a series of a DBL BTM patterns. This behavior may prove to be foreshadowing, but I digress.
Fast forward to 11/3/23 AMD has just closed above the neckline of a DBL BTM pattern, after completing a series of DBL TOP patterns, in the midst of four consecutive earnings beats. History may not repeat itself, but it has a tendency to rhyme. The stock has also broken through the top of a Descending Channel(D) that it has been trading in since the start of the series of DBL TOP patterns. The upward momentum has been so strong that the stock broken and closed above the 200MA(D), 100MA(D), and 50MA(D) over just the last three trading sessions, making a new local high in the process. The stock has been on a rocket ship since finding support at levels identified and explained in a previous idea(see AMD Earnings Breakout or Breakdown).
As for this idea. The series of DBL TOP patterns is represented by the black curves above the would be tops, with their respective necklines identified by the small black circles seen on the chart. The DBL BTM pattern is represented by the green curves found at the would be bottoms with the neckline also identified with a circle as well. The red curves represent a failed DBL TOP even after a closing confirmation on the Daily chart below what would have been the neckline. Proof that the markets can do anything at any time therefore, you can never let your guard down. However, it should be noted that this failed DBL TOP pattern comes after two successfully executed DBL TOP patterns, and a third that could be considered successful depending on your perspective. The third one just happened to occur near the 200MA(D) which has historically been strong support for any asset. Regardless the diagnosis it still amounts to a series of successful BEARISH patterns that have begun to fail, possibly indicating BULLISH price action moving forward.
Bull Case
1. Strength above $111.31. If the DBL BTM pattern is to play out, this area would be the neckline of the formation.
2. Strength above the top of the Descending Channel(D) in which the stock has been trading for the past three months or so. The stock has closed above the top of the channel with momentum. It would not be shocking to see the stock retest the top of the channel.
3. A retest and bounce from the local low, creating a higher low. This would be a BULLISH indication as the stock has already created a higher high signaling the potential start of an uptrend.
Bear Case
1. Strong rejection at the stock's current levels. Such price action could imply yet another DBL TOP formation, leading to further downward momentum.
2. BEARISH price action, chart patterns, or strong rejection at the yellow rectangle drawn above the current price level. This area represents the Golden Zone of a BEARISH Fib Retracement from the local high of $132.83 to the local low of $93.12. This area serves as a strong area of resistance and could serve as a logical area of rejection. Especially given how far and fast the stock has run since earnings.
3. A break below the DBL BTM pattern all together. This would be extremely BEARISH and could signal a falling knife situation. Under these circumstances bias should switch to the downside and the stock should be monitored for short opportunities.
*As things currently stand, bias is to the upside, with a guilty until proven innocent approach. The market has been extremely erratic, and rallies have been hard to trust. The stock has only created its first higher high, after trading in a clear downtrend(a series of lower highs and lower lows).
*RSI(D) displays a DBL BTM formation that has been confirmed with a break of the neckline.
*Watching AVP(52 wk Low)(POC), Moving Averages(D), Descending Channel(D), Key Levels(black rectangles), Ascending Support(red trendline), Bollinger Bands(D), and the AVWAP(52 wk Low) at their respective levels for additional confluence.
BTM 1: $94.46
BTM 2: $93.12
Neckline: $111.31
Target 1. (Neckline - BTM 1) + Neckline
Target 2. (Neckline - BTM 2) + Neckline
Target Range: Target 1 - Target 2
This would be the expected move over time after such BULLISH momentum. Nevertheless, as a trader you must never forget that the market can take an endless number of roads on its way to reaching its ultimate destination. It will be important to monitor the overall health of the market as well as NVDA's upcoming earnings on 11/21/23. If NVDA can turn in a strong earnings report and continues to run up, expect AMD and other semiconductor stocks to follow suit. It should also be noted that the RSI(D) has risen in synch with the stock adding more confirmation to the BULLISH sentiment. Even so, the stock just registered its first oversold value on the Daily chart(11/10/23) since the run up. Although this is a BEARISH signal it by no means implies that the stock will immediately begin to reverse. Stocks can continue to run up substantially even with an oversold reading on the RSI. Overall bias is still to the upside howbeit with such a huge move up, a pullback and retest of support is not only inevitable but would be healthy. Watching for the following behaviors:
*For all scenarios listed below both the 5(MA)(D) and the 9(MA)(D) should be closely monitored for added confluence.
BULLISH
1. Should the stock begins to consolidate at these elevated levels it would imply that price has been accepted by the market, and new value has been determined. Assuming this scenario were to play out, a break of this hypothetical area of consolidation would be BULLISH and possibly lead to another push up.
2. Currently the stock is respecting the 5(MA)(D). This moving average has changed its trajectory drastically since earnings. As long as the stock continues to close above the 5(MA) on the Daily chart the BULLS have control. Any pullback to this level that can be combined with deeper technical analysis on smaller time frames to create confluence would serve as a logical place to enter long.
3. A Retest of the Neckline on the larger timeframes. This area now coincides with the .38 Fib Level of a retracement from the low made on 11/01/2023(the day following earnings), as well as the Golden Zone of a Fib Retracement from the low made on 11/02/2023(the day after). Watching for BULLISH candlestick or chart patterns to form at this area. It should be noted that if the stock continues to climb it would change the top of the retracement, therefore altering these calculations. Anchor points may need to be changed or different Fib Level reactions identified.
4. Lastly, in the event of a deeper pullback, the asset is still subject to a Retest of the top of the Descending Channel(D) from which the stock originally broke out. Notwithstanding, such price action would not automatically be BEARISH and signal a breakdown. This could happen and the stock ultimately remain BULLISH. The stock has yet to retest this area on the larger timeframes in similar fashion to the neckline of the DBL BTM pattern. The upward momentum has been so strong that the stock has blown past both of these areas. One of these two areas, if not both, would likely serve as support on a pullback, resulting in a bounce, and allowing the upward trend to resume.
BEARISH
1. The stock is currently trading at resistance levels that were strongly rejected just three to four months ago. A reaction to the levels should be expected. This reaction could very well be to the downside, especially after a run up of over +20%. The candle corresponding to 11/10/23 on the daily chart could be interpreted as the first signs of buyer exhaustion as opposed to continued momentum to the upside. Price can't go lower until the last buyer has bought. Be that as it may, price action would still need to be monitored for weakness at this level before taking any type of long-term short positions. However, carefully placed short trades with precise entry and exit targets could be highly profitable should begin to show weakness.
2. Watching for rejection at $120(psychological level of resistance). This will be an area of interest simply because it's a nice round number. Many orders on both the buy and sell side are sure to be executed around this price level, possibly leading to increased volatility. Again, trades should not be entered simply because price reaches the level, rather price action should be monitored for possible high probability setups.
3. For now, the stock has pierced through the Golden Zone of the BEARISH Fib Retracement referenced at the beginning of the idea. This is still an area that may produce opportunities to short the stock. Oftentimes a stock will overshoot support or resistance by a small margin before respecting the area. This is also healthy as it provides clear areas to place a good stop loss. The next few trading sessions will indicate how price is responding to the level.
4. At this point, if the stock were to fall back inside the Descending Channel(D) from which it broke out, price action should be considered extremely BEARISH, and bias would switch to the downside. It may then be advantageous to look for setups that play the stock towards the bottom of the Descending Channel(D) on a retest of the recent lows.