Trade ideas based on technical analysis can be classified into two main categories: trend following or mean reversion. Most of the pieces we’ve done over the past year as part of CNBC Pro’s profile trend-following strategies: we mentioned dozens of potential bullish patterns, and in the bull market we’ve had so far in 2024, they were highly likely. of being successful However, even the best performing stocks inevitably underperform. When this happens, we do not recommend trying to catch the falling knife. The declines are more severe and develop more quickly than the previous advances. In other words, there is no reason to guess when the moment will rise, if at all. However, when a bearish stock clears and/or falls to the intersection of supports, the risk-return ratio can become favorable. And when that happens, we can look for a mean reversion strategy. AMD now meets that criteria. First, let’s review what happened to the stock. AMD has had a very difficult time since its high peak and monster reversal on March 8 almost nine months ago. The stock’s decline from the August 5 low reached -46%. And while AMD is now off that August low, it hasn’t made the surge it showed between November 23rd and March 24th. However, along the way, AMD has had two very large mean reversion rallies, totaling 32% and 44%. And with the stock hovering above the 130 zone in recent weeks, it may be poised for another rally attempt. The previous two declines were severe enough to produce oversold readings on the stock’s 14-day RSI (sub-30) in April and August. Recently, the indicator has been above the 30 threshold, showing that the momentum has not been negative at this point in time. That is a potentially constructive sign. If this bounce continues, the initial target would be around $170. The last two bounces failed to reach heights, so AMD would have some extra work to do from then on. Once that upside target is reached, the next step would be to see the stock execute the bullish pattern that has been missing for most of 2024. Zooming out, it is clear that AMD has respected two long-term trend lines (support) in recent weeks, with both lines converging near the 130 area. That’s what some of the help mentioned above is doing. So far, AMD has respected that area and will now look to capitalize on the hold in an extended move higher. The green colored horizontal support line is the same line that the stock had in December’23 and again in August and September’24. Finally, we know that NVDA has dominated the semiconductor space for the past two years, but AMD matched NVDA’s percentage gain from its October 2023 low to its March high; both stocks rose roughly 145% during that time. The bottom line is that we’ve seen very strong positive momentum for AMD before, and when traders think it’s really ready to go, equity-following trends could return to the stock again. NAMES: (Owned by Nvidia) All opinions expressed by CNBC Pro contributors are their own and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, its parent company or affiliates, and may have been previously disseminated by them on television, radio, the Internet. or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE A SECURITY OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE SPECIFIC SITUATION OF ANY PERSON. THE ABOVE CONTENT MAY NOT BE APPROPRIATE FOR YOUR SPECIFIC ENVIRONMENT. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD REMEMBER TO SEEK THE ADVICE OF YOUR FINANCIAL OR INVESTMENT ADVISOR. Click here for the full release.
