Advanced Micro Devices, Inc. has been the surprise out performer of 2016. The chip maker, which not too long ago was battling bankruptcy threats, has seen its shares more than double from the lows of February.
But a look at the daily chart suggests bulls are running out of steam, and the stock may fail to immediately break through the strong resistance around the $4.70 zone. Shares closed Tuesday at $4.51.
Advanced Micro Devices Showing Signs of Exhaustion
Shares of AMD have largely been range-bound since the past three years. However, the appearance, and eventually the break out above a “double bottom” in February, confirmed that the stock had finally managed to change its long-term trend from sideways to up.
What followed in the next couple of months was nothing short of a classic “bull” trend, with every dip in the stock seeing buyers enter, only to push prices higher. The first major retracement came around the start of the month after shares hit a multi-year high of $4.71. The pullback found support around the $4.20-mark, post which, the stock resumed its move higher.
And now as AMD inches closer to the highs set late last month, traders must be contemplating entering into the stock on a close above the prior pivot high. But a look at the daily price chart reveals that all is not well with the stock, with momentum oscillators like Stochastic and Relative Strength Index showing signs of “diverging” from price.
Under such circumstances, traders and long-term investors should contemplate initiating a long trade only on a comprehensive breakout above $4.70. In the event of the stock reversing, support should kick in at around $4.20.
Advanced Micro Devices has Wall Street Split
Despite recording such a spectacular jump in its share price, Wall Street remains split on AMD’s prospects. Of the 19 analysts covering the stock, 7 have a “Buy” rating, 6 a “Sell”, while 13 reckon the stock is a “Hold.”
The bullish camp is led by MKM Partners analyst Ian Ing, who recently lifted the target price to $5 from $4, before reiterating his “Buy” rating.
“Our $5 price target is based on 1.3x EV/NTM Sales using unchanged above-Street sales estimates…We think a robust product pipeline supports this multiple,” he wrote to clients yesterday.
On the other end of the spectrum is TheStreet co-founder Jim Cramer, who says the major driver of the recent rally in the stock was the waning of bankruptcy risks.
“The chip-maker is still way too risky to own as a long-term investment,” he said on CNBC.