AMD Earnings Preview - Here's What the Chart Says

Advanced Micro Devices has been on fire, but will earnings derail the rally or accelerate it? Here's a look at the charts for the stock.
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Shares of Advanced Micro Devices  (AMD) - Get Report were mixed on Monday, about flat in the session after gaining more than 16% on Friday.

Conveniently, a number of investors were already long AMD as it had just embarked on a powerful breakout earlier in the week.

However, it was negative news from Intel  (INTC) - Get Report - which was good news for AMD in this case - that really sparked this powerful move. The rally sent shares to a few key extensions and has investors wondering if more could be on the table.

That answer could hinge on earnings, which are due up on Tuesday after the close of trading (here are five things to watch in the report). 

The reaction to the report could either add fuel to the fire or throw cold water on the coals. It could also have an impact on Nvidia  (NVDA) - Get Report, one of AMD's closest-watched peers.

Let’s look at the charts more closely.

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Trading AMD Stock

Daily chart of AMD stock price.

Daily chart of AMD stock price.

The daily chart above shows AMD’s powerful breakout on Wednesday July 22nd. Traders even had a second chance to buy the stock, as shares pulled back and retested this breakout spot in the following session.

With Friday’s gap-up, AMD stock rocketed through the 123.6% and 138.2% extensions, as the latter acts as support on Monday.

Ordinarily, aggressive bulls may jump in on any day of weakness — like Monday — and look to ride the momentum higher. Keep in mind, shares doubled from the fourth-quarter low to the first quarter-high, and the stock has been consolidating that gain for months. That’s why fortune favored the bulls once resistance gave way.

With earnings on the table though, it’s a different approach. Many will prefer to wait until the report is out before taking a position in the name.

On a bullish reaction, let’s see if AMD stock can clear Monday’s high at $71.63 and rally up to the 161.8% extension at $73.19. Should shares continue higher from there, a longer-term price target may be the two-times range extension at $81.79.

On a bearish reaction, see if the 123.6% extension at $64.58 and Friday’s low at $64.05 act as support. A close below will likely fill the gap down toward $62.

I don’t suspect we’ll get a retest of the $58 to $59 area — which would require a near-20% correction in the stock — but that may be a solid buying opportunity provided that zone acts as support.