This post will provide only a brief update to the more detailed technical discussions of AMD from last week. The more detailed technical analysis is contained in a pair of AMD posts linked on the Primary Chart above.
1. Nothing has changed with regard to AMD's larger downtrend structure. As discussed in last week's analyses, AMD remains in a severe downtrend that has shown no evidence of structural change.
2. Last week's discussions identified a false breakout above the shorter-term down trendline, made especially clear by a Pinocchio bar with a long shadow protruding above this trendline. This foreshadowed the large decline that ensued the next day, with the stock gapping down significantly. Since the Pinocchio bar was identified, the stock has plummeted another -15.0% to -17.1%. Isn't it interesting that when stocks are in a trend in either direction, they can go higher / lower than expected? Stocks that seem very low in a downtrend seem to find their way ever lower.
3. An extremely sharp bear bounce could occur at any time. Just look at the prior rallies in the chart below this paragraph. Many of these bear rallies rise nearly vertically from the lower line of the channel (called the return line). This is typical of bear rallies. They tend to be some of the strongest rallies that happen in markets, and this bear market has been a fascinating learning experience (even if painful for longer-term investors) as these rallies and declines unfold.
Supplementary Chart: Measurement of Prior Bear Rallies and Bounces YTD
4. Just because bear rallies can happen doesn't mean that every time the lower channel is tagged that a sharp rally will ensue. But a bullish divergence has formed on daily RSI, meaning that as price made new lows, RSI made higher lows. But a bullish divergence can be erased by price falling rapidly to a new low and pulling RSI with it below its prior RSI low. So it's better to wait for confirmation from price.
5. The lower edge of the parallel channel on Primary Chart shows where price could reach in October 2022. This level ranges from about $55 to $51 over the course of this month.The critical question for AMD is whether (i) price will accelerate its downtrend even further by breaking below this line or (ii) whether AMD will reverse there for a sharp bounce back into the channel. One other alternative is that AMD could whipsaw below the line for a few trading days in an extreme exhaustion move, then snap back above the line, signaling an intermediate term rally.
Having identified the key levels that may affect the price action, SquishTrade will not attempt to make bold predictions of either (a) a break below the trendline, or (b) a key reversal that leads to a sharp trip back to the top of the channel. Much will depend on the FOMC minutes and CPI this week and their affect on the interest-rate environment. Given the environment (a severe downtrend) and the levels shown, traders and investors can make their best call with tight stops in place that measure and limit risk—risk is inherent in every trade or investment which is why stops are important for everyone except Warren Buffett—or even better, they can wait patiently for a trend-based setup at resistance.
________________________________________
Author's Comments: (1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view. (2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades. (3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success. (4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
تعليق
⋅
After a fairly sizeable flush in US equity indices, AMD is bouncing hard off the bottom of its downtrend channel.
تعليق
⋅
To clarify, AMD didn't hit the exact bottom of the channel as I have drawn it. It came quite close with a low of day at 54.57.
Check out the below log-linear regression channel.
You can see that every time AMD has touched the upper channel line (+1.8 standard deviation), it has subsequently retraced all the back down to at least its mean (the red line).
Given that the higher interest rate environment will persist for years to come and is unfavorable to tech and growth, I anticipate that AMD will continue to move down over the long term.
Below is another perspective, which is a chart of AMD relative to the money supply.
In 2021, AMD tagged its upper limit relative to the money supply. Although somewhat of a dense concept to understand what this chart is saying is that AMD has undergone a shift from being a wealth-building asset to being a wealth-losing asset. In order for an investment to be wealth-building, it usually must grow at a rate that is faster than the rate at which the money supply is growing. Failure to do so means that the asset is wealth-losing (and this is true even if the actual price of the asset is going up -- if the money supply is going up faster, then one is losing purchasing power over time by holding the asset). It appears that for many months (even perhaps years?) AMD will be a wealth-losing investment asset. Price can jump in bear market rallies, but in general, this will hold true.
The oscillators on this 6-month chart suggest the downward momentum could last for quite a while.
This is true not just for AMD, but for most tech stocks in the current environment, and sadly for the stock market in general. With I bonds paying almost 10% yields, and a record number of investors pulling money out of the stock market and locking it up in bonds -- thus making their capital unavailable to the stock market -- I fear more pain is to come.
Hope you don't mind me leaving my thoughts! Good job and look forward to your future posts! Keep it up
SquishTrade
⋅
@spy_master, Actually, I don't mind at all and in fact, I'm happy to have your charts here as they add a lot to my post. :) Thanks for your valuable input and longer-term analysis.
Later today or tomorrow, I may ask a follow-up question on your money supply chart.
I think it could rally up and not touch the upper channel line regression channel and come back down hard like you said. I'm just scared my 52 put for 2 weeks not gonna print
SquishTrade
⋅
@hiasi7, Thanks for your comment, and good luck with your trading
IntheEndWeDividend
⋅
@hiasi7, yeah i think ill wait for it to try the upper channel one more time and then buy puts. I have a feeling negative or positive earnings, its going to wither run up or dip a bit then run up before it plunges hard.
hiasi7
⋅
@SquishTrade following you. you inspire me to post something.
@spy_master, It took me a bit to get back to this comment with a couple follow up questions.
1. Is this the definition of money supply typically used, and used in the charts you posted above? fred.stlouisfed.org/series/M2SL
2. My basic understanding of this monetary supply issue is as follows: (a) the money supply has begun to decline from its highs last year b/c the Fed is doing QT (and raising rates via its changes in FFR); (b) when the Fed offloads bonds on its balance sheet through open-market operations, it receives dollars in exchange from these bond sales, which pulls money (USD) out of the monetary system, reducing liquidity; and (c) when the Fed sells bonds, it increases the supply of bonds, lowering bond prices, raising interest rates, and this has an indirect effect of reducing monetary supply as well. Does this sound like it captures the basic explanation of why monetary supply has begun to decline (and likely will continue)?
3. I've not seen charts very often graphing a ratio of an asset (e.g., AMD's price) to the monetary supply. Is this a common practice in fundamental analysis? Whether or not it is, I find it very interesting, and thanks again for sharing all your charts.
SpyMasterTrades
⋅
@SquishTrade, Thank you for your thoughtful questions. Below are my answers:
Question: 1. Is this the definition of money supply typically used, and used in the charts you posted above? fred.stlouisfed.org/series/M2SL
Answer: Yes, that is the definition of M2 that I used in the charts above, and yes, M2 (symbol: M2SL) is often used in the context of analyzing the money supply. M2 is often used as opposed to M0 (the monetary base) or M1 because it (M2) better reflects the total amount of money that is investable. I’ve never seen anyone chart with M3 on Trading View, but if one did, the result would be very similar as charting with M2.
Check out the below log-linear regression channel.
You can see that every time AMD has touched the upper channel line (+1.8 standard deviation), it has subsequently retraced all the back down to at least its mean (the red line).
Given that the higher interest rate environment will persist for years to come and is unfavorable to tech and growth, I anticipate that AMD will continue to move down over the long term.
Below is another perspective, which is a chart of AMD relative to the money supply.
In 2021, AMD tagged its upper limit relative to the money supply. Although somewhat of a dense concept to understand what this chart is saying is that AMD has undergone a shift from being a wealth-building asset to being a wealth-losing asset. In order for an investment to be wealth-building, it usually must grow at a rate that is faster than the rate at which the money supply is growing. Failure to do so means that the asset is wealth-losing (and this is true even if the actual price of the asset is going up -- if the money supply is going up faster, then one is losing purchasing power over time by holding the asset). It appears that for many months (even perhaps years?) AMD will be a wealth-losing investment asset. Price can jump in bear market rallies, but in general, this will hold true.
The oscillators on this 6-month chart suggest the downward momentum could last for quite a while.
This is true not just for AMD, but for most tech stocks in the current environment, and sadly for the stock market in general. With I bonds paying almost 10% yields, and a record number of investors pulling money out of the stock market and locking it up in bonds -- thus making their capital unavailable to the stock market -- I fear more pain is to come.
Hope you don't mind me leaving my thoughts! Good job and look forward to your future posts! Keep it up