How to Trade AMD Stock After Nvidia's Plunge

Shares of AMD are falling alongside Nvidia after the latter warned on its upcoming quarterly results.

Author:: Bret Kenwell
Publish date:: Jan 28, 2019 4:31 PM EST

TheStreet

Shares of Advanced Micro Devices (AMD) - Get Report lost about 7.98% Monday, although they closed off session lows.

The decline comes after Nvidia (NVDA) - Get Reportwarned about its fourth-quarter results, saying it expects revenue to come in below management's already-low expectations. It expects margin pressure as well. While Nvidia closed down 13.82% as a result, it's no surprise that AMD is under pressure, too.

Remember that last quarter, AMD was the one that reported disappointing earnings results first. The news weighed on Advanced Micro Devices heavily as the quarter was quite disappointing. Nvidia shares sank in sympathy, but really took a dive after it reported its third-quarter results.

Both AMD and Nvidia fell victim to a decline in chip demand from cryptocurrency miners last quarter. This quarter -- at least for Nvidia -- the issue seems to be demand for its chips out of China, not from crypto miners. It's unclear whether AMD suffered the same fate this quarter, but these two seem to be in sync lately, for better or for worse. As such, investors are dumping AMD stock on Monday, too.

That said, neither stock is breaking to new lows. While it's possible that AMD and Nvidia continue to decline and take out those lows, bulls at least have a fraction of optimism working in their favor -- however small it may seem.

Let's take a closer look at AMD.

Trading AMD Stock

While AMD stock is under pressure, it's still technically OK. Shares are holding up over all three major moving averages on the chart -- the 21-day, 50-day and 200-day -- as well as uptrend support (blue line). Should AMD lose the 200-day, currently the lowest of the moving averages at $19.40, then the stock may be in some trouble. At that point, it will have lost all of its moving averages as well as uptrend support.

If that happens, we could see a retest of its lows near $16, where Advanced Micro Devices put in a double bottom in October and December. So below ~$19.40 and traders should certainly be cautious if they're not stopped out of the name.

Should AMD stock hold support and continue to press higher, look to see how it does near resistance between $21.50 and $22. This mark has kept a lid on AMD over the last few months, making it a tough line of resistance.

But the truly tricky part for AMD stock at this point isn't what's on the charts, it's what the company is going to report on Tuesday after the close. On Jan. 29, Advanced Micro Devices will report its fourth-quarter earnings. Expectations haven't come down all that much from the analyst community, so it will be interesting to see how Advanced Micro Devices does and how its stock will react.