Although let's call it what it is: AMD stock was way too hot coming into the fourth quarter. Shares had hit a low of roughly $9 in May and topped out near $34 in September. Not that AMD isn't a good company or that CEO Lisa Su hasn't done a tremendous job leading the charge, but a near-tripling in a matter of months?
Too much, too fast.
This is particularly true as demand for cryptocurrency mining was in decline. It didn't matter that AMD or Nvidia (NVDA - Get Report) were producing crypto-specific GPUs, as miners would use the companies' other GPUs as well. This made it seem like, once demand for crypto-specific GPUs died down, that demand for other GPUs would still be OK. This was untrue, causing a major build in inventories, while inflated demand gave management and investors a false sense of future revenue. This issue became more well-known once AMD and Nvidia reported their most recent earnings results.
While AMD had already paid a steep earnings-related price in mid-October -- falling from $23 to $19 in one day -- it was constructive to see its price action following the earnings-related bludgeoning that Nvidia took a month later.
In fact, shares have been trading better and better since AMD's quarterly results. So let's circle back to the stock and see if it's a worthwhile long.
Trading AMD Stock
The first thing I look for on a stock is its risk, then I map out the reward. That's one reason you don't hear many investors asking, "what's the reward/risk." It's "risk/reward" for a reason and that's because it's more important to protect ourselves than chase potential winners.
In any regard, we have an attractive risk/reward with AMD stock.
Shares recently bounced off the 200-day moving average. In doing so, it not only kept that level of support intact, but also put in a higher low. That can be seen in our short-term uptrend (blue line). Further, the stock has recently gotten above the 21-day moving average and downtrend resistance (black line). For the last few sessions, shares have pulled back, but each time these two marks have held as support.
With that, short-term traders have a defined risk, while upside to the $23 to $24 area is possible. As is usually the case, it's best to keep it simple.
Of course, any trade talk from the G-20 Summit can swing AMD (and the market) in a different direction. But all things considered, AMD looks pretty good right here.