Before we start I want to mention two things. I’m long and this is not a recommendation to buy the stock today. This is a poor entry point, although I think the stock will be higher eventually. The purpose of this post is to talk about what’s going on in the stock and understand what creates a breakout this strong.
The fundamentals are definitely compelling, but really all you need to understand are the technicals.
Technically, we’ve seen a long term, gradual downtrend break during a rally from below 2 to 8. Since that break, AMD shares have traded in a tight range. There were just no sellers.
This chart is simple and may not speak to a lot of people, but it’s a textbook worthy continuation symmetrical triangle. Note where this is coming.
- We have a massive upside move
- It breaks a 7 year old downtrend
- The downtrend has a gradual slope
- 2016s first test of this trendline created ONLY a very shallow dip before breaking out
- After clearing the downtrend AMD based completely above it
Next, lets think about asset allocators
One other factor in play is Nvidia. Nvidia reported earnings last week and absolutely hit the ball out of the park. Shares gained 30% post earnings and are up nearly 190% year to date.
So everybody sees NVDA. A lot of people aren’t exposed or at least underexposed to the stock. So what do you do? Do you buy a stock that is up so much recently? Or do you look to play the trend with a competitor that has traded sideways for 2 months and offers a better risk/reward.
AMD is a competitor to NVDA and the V/R and AI chip markets are growing at a massive clip. We’re so early in these cycles that everybody can win.
So, you combine technicals, fundamentals and psychology and folks are willing to place bets.
It’s amazing how this all comes together, but really you only need price to guide you.
Trade ’em well!