Technical analysis-based trade ideas can be classified into two main categories – trend following or mean-reverting. Most of the pieces we’ve done over the last year within CNBC Pro profiled trend following strategies – we’ve cited dozens of potential bullish pattern breakouts, and in the bull market we’ve had so far in 2024, those had a high probability of being successful. However, even the best performing stocks inevitably falter. When that happens, we don’t recommend trying to catch a falling knife. Downturns often are more severe and unfold more quickly than the preceding advances. In other words, there’s no reason to guess when momentum is going to turn higher – if it does at all. However, when a declining stock gets washed out and/or falls to a confluence of support, the risk return ratio can turn favorable. And when that happens, we can look to a mean-reverting strategy. AMD satisfies that criteria now. First, let’s review what has happened to the stock. AMD has had a very challenging time since its spike high and monster negative reversal nearly nine months ago March 8. The stock’s peak-to-trough decline to the August 5 th low got to -46%. And while AMD now is off that August low, it has failed to garner the kind of upside follow through that it displayed from November’23 through March’24. However, along the way, AMD has experienced two very big mean-reverting rallies, totaling +32% and +44%. And with the stock’s recent hold above the 130-zone the last few weeks, it could be getting ready for another rally attempt. The preceding two downturns were severe enough to produce oversold readings in the stock’s 14-day RSI (sub-30) in both April and August. Recently, the indicator has stayed above the 30-threshold, showing that momentum didn’t get as negative this time. That’s a potential constructive sign. Should this bounce continue, the initial target would be near $170. The last two bounces failed to make higher highs, so AMD would have additional work to do from there. If/when it gets to that upside objective, the next step would be seeing the stock form a traditional bullish pattern, which has been lacking for most of 2024. Zooming out, it’s clear that AMD also has respected two long-term trend lines (support) over the last few weeks, with the two lines now having converged near the 130-area. That’s the confluence of support we mentioned above. Thus far, AMD has respected that zone and now it will be trying to leverage the hold into an extended move higher. The horizontal support line in green is the same line that the stock rallied from in December’23 and most recently, again, in August and September’24. Lastly, we know that NVDA has dominated the semiconductor space the last two years, but AMD matched NVDA’s percent gain from the October 2023 low to its March high – both stocks were up approximately 145% over that time. The bottom line is that we’ve seen exceptionally strong positive momentum in AMD before, and once traders think it’s truly ready to run, trend following capital could find its way back to the stock again. DISCLOSURES: (Owns Nvidia) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, 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 CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
