The American multinational semiconductor company that develops computer processors and related technologies for business and consumer markets, Advanced Micro Devices, Inc. (NASDAQ: AMD) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Pennant Pattern: As seen from the daily chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range. This is a classic pennant pattern and is marked in the chart in pink color. A pennant is a continuation pattern. Whenever a stock breaks out of the pennant pattern, it typically continues its previous trend (uptrend in this case).
Daily Chart – AMD
#2 Trading Above MA: The stock is currently trading above its 200-day SMA, which implies that the bulls are currently in control.
#3 Bullish Stochastic: The %K (blue) line of stochastic is currently above the %D (Orange) line.
This is a possible bullish indication.
#4 Oversold RSI: The daily chart shows that the RSI is currently moving higher after reaching near oversold levels.
This is a possible bullish sign.
#5 Ascending triangle pattern Breakout: AMD’s weekly chart shows that the stock had broken out of an Ascending Triangle pattern.
An Ascending Triangle pattern is a bullish pattern. This is marked on the weekly chart in purple color. The breakout level of the ascending triangle pattern generally acts as a good support level.
Weekly Chart – AMD
#6 Price above MAs: The weekly chart shows that the stock is currently trading above its 50-week as well as 200-week SMA. This indicates that the stock still has a bullish bias.
#7 RSI Nearing Oversold: In the weekly chart, the RSI is currently nearing oversold levels. This indicates that a reversal may be imminent soon.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level is if the stock corrects back to the breakout level of ascending triangle pattern at around $34.50.
Alternatively, you may also purchase the shares of AMD if it breaks out from the pennant pattern at around $43.70.
TP: Our target prices are $50 and $55 based on the breakout from Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $26.90 (for entry near $34.50) and $39.40 (for entry near $43.70). Note that this stop loss is on a closing basis.
Our target potential upside is 14% to 59% in the next 3-6 months.
- Entry at $34.50: For a risk of $7.60, the target rewards are $15.50 and $20.50. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at $43.70: For a risk of $4.30, the target rewards are $6.30 and $11.30. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle breakout level. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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