AMD Stock Might Break Out or Break Down - Here's the Trade

Advanced Micro Devices has been range-bound between $50 and $57. What's next for the chipmaker's stock?
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Advanced Micro Devices  (AMD) - Get Report was running back toward its highs before it reported earnings about a month ago. Since then, it’s been slowly but surely trying to regain steam to retest those pre-earnings highs.

Nvidia’s  (NVDA) - Get Report resurgence has helped keep the semiconductor space at the forefront of the investing world, which has also helped buoy AMD. 

Even as Nvidia reported strong earnings on May 21, however, that’s about when AMD hit its short-term high and has been retreating since.

This is surprising, given that the Santa Clara, Calif., chip giant is forecast to have strong growth this year and next. Further, it’s a favorite among growth and technology investors alike.

Investors need to remember, though, that AMD stock more than doubled from its October lows to its February highs. Digesting that move now and the sideways action actually seems pretty healthy. Let’s examine the charts closely.

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Trading AMD Stock

Daily chart of AMD stock.

Daily chart of AMD stock. 

Like many stocks, Advanced Micro Devices was hammered from its February high to the March low. But the ensuing rebound sent the shares right back up to resistance, which comes into play between $57 and $58.

On the one hand, we have some healthy sideways consolidation in AMD stock. The shares are chopping between $57 on the upside and $50 on the downside.

This range trade enables traders to watch for a breakout or a breakdown. 

Based on AMD’s past, investors may be inclined to have a bullish bias. On the other hand, short-term momentum is waning a bit.

AMD stock is now below the 20-day moving average, as well as uptrend support (blue line) from the March lows. For now, the shares are clinging to the 50-day moving average, while Thursday’s decline sent AMD down to the May 1 low, to the penny at $49.09.

From here, we need to see shares break - in one direction or the other.

On the upside, AMD stock needs to reclaim its 20-day moving average and push through the May high near $57. Above that enables the stock to challenge its 52-week high at $59.27.

A break of the 50-day puts the $50 mark and the double-bottom May low of $49.09 back in play. Below the 50% retracement at $48.01 and a deeper decline could be in play, particularly if it comes amid a broader market correction. 

While this range doesn't have to break anytime soon, with an elevated state of volatility, it's worth knowing where support and resistance can be found.