AMD's Strength Fades Quickly, New Lows Ahead
Updated
Primary Chart: AMD's Downtrend from All-Time Highs (2D Time Frame), Fibonacci Retracements and Projections, Long-Term VWAPs
Current Analysis
AMD remains in a severe downtrend as past analyses have discussed. The history of some key 2022 analyses by SquishTrade is reiterated below in the "Past Analyses" section below. This may help give context to the current analysis.
AMD rallied hard off the mid-October 2022 lows. This rally was mentioned when price was trading down into the mid-October 2022 low. See Supplementary Chart B below (discussing the likelihood of an extremely sharp bear bounce" from a multi-month support zone, and noting that the risk-reward at the time was poor for shorts. Price traded down into the key support zone of $54-$55, and then rallied powerfully into December 2022.
The highs, however, in the $79-$80 range failed right at trendline resistance. On a linear chart (Primary Chart above), price pushed through the down trendline briefly, setting up a bull trap for those thinking the trend structure might have changed. But price fell back below quickly, a sign of exhaustion and a reinforcement of the very trendline that caused the exhaustion and reversal lower.It appears the downtrend at the primary degree has resumed, and even if sharp rallies occur again, as is typical of bear markets, new lows will likely be reached in 2023.
In the process of declining after failing at resistance, AMD cut through a key Fibonacci level of $63. It also broke below a critical anchored VWAP from October 2022 lows.
Price targets are identified in the summary section above. But note that two alternative projections both result in a price target around the $47-$48 range. Both these projections rely on a "measured move" and Fibonacci approach (linear chart). Both these projections are .618 projections of prior major legs of decline. And they end up right near the very long-term VWAP from 2015 (dark blue) which is at $48-$49. Lastly, note that the log chart shown in Supplementary Chart 1 has a key measured-move, 1.00 Fib projection at $45.
Supplementary Chart 1
Past Analyses
AMD's severe downtrend has been discussed in several recent posts in 2022. In May 2022, SquishTrade applied technical analysis to conclude that AMD, which then traded at $94.24, would see more downside in price in the coming weeks and months. A downside projection of $60-$63 was discussed in May 2022, and that was later achieved when price hit $63.34 in September 2022. See the May 2022 post here.
Later, on October 6 2022, SquishTrade provided a more thorough discussion of the technical evidence supporting the continuation of the primary trend downward. See Supplementary Chart A below. Despite substantial rallies in tech stocks, including other chipmakers like NVDA, and large-cap tech stocks like AAPL, nothing has materially changed in the structure. In fact, even if more rallies lie ahead, AMD trend structure will take a lot of work to change.
Supplementary Chart A
When AMD reached a low in mid-October 2022, SquishTrade posted a warning that risk / reward for shorts was poor at the time. Supplementary Chart B. The post noted that AMD's price was near multi-month support and that "an extremely sharp bear bounce could occur at any time. Just look at the prior rallies . . . . 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 B
But despite that major rally that was imminent, nothing had changed with regard to AMD's larger downtrend structure. That remains true now: AMD remains in a severe downtrend that has shown no evidence of structural change.
Another post in October 2022 noted the possibility of the $55 zone of support being significant was also discussed. See Supplementary Chart C. That post, however, was mainly to provide a brief snapshot of AMD's price "at the secular level of trend," which is a multi-year view (longer than a primary trend view which tends to be 9 months to 2 years). The October 30, 2022, post stated: "It's clear that in the intermediate term, bulls need to hold AMD's price above $54-$55 or else the next major level to the downside comes into play." But SquishTrade noted that the level may be retested in the coming weeks to months.
Supplementary Chart C
The time is likely approaching for a retest of that $54-$55 level. The current viewpoint will be discussed below along with reasonable price targets for 2023
- AMD remains in a severe downtrend at the primary degree.
- AMD's price on its most recent rally off the October 13, 2022, low rallied right into trendline resistance and rejected lower. On a linear chart (primary chart above), price pushed through the trendline briefly, setting up a bull trap for those thinking the trend structure might have changed. But price fell back below quickly, a sign of exhaustion and a reinforcement of the very trendline that caused the exhaustion and reversal lower.
- Price also failed right at a key 50% retracement (green) of the August 3 to October 13 leg of decline.
- AMD broke below a key long-term Fibonacci level (.618 R) at 63. And it fell below its anchored VWAP from 2022 lows.
- Now price sits right at a critical multi-year VWAP anchored to 2018 lows (yellow). It looks likely to push below it in the coming days / weeks.
- Target 1 lies at prior October 2022 lows (actually, slightly above those prior lows) at $55. This is the most conservative target and mostly likely to be achieved. Target 2.A is $48-$49. Target 2.B is 47.20. Target 3 is $45, shown on Supplementary Chart 1 immediately below. (Each target is a condition precedent to the next lower target. Unless and until a prior target is hit and held on a close, the lower targets are not in effect.)
Current Analysis
AMD remains in a severe downtrend as past analyses have discussed. The history of some key 2022 analyses by SquishTrade is reiterated below in the "Past Analyses" section below. This may help give context to the current analysis.
AMD rallied hard off the mid-October 2022 lows. This rally was mentioned when price was trading down into the mid-October 2022 low. See Supplementary Chart B below (discussing the likelihood of an extremely sharp bear bounce" from a multi-month support zone, and noting that the risk-reward at the time was poor for shorts. Price traded down into the key support zone of $54-$55, and then rallied powerfully into December 2022.
The highs, however, in the $79-$80 range failed right at trendline resistance. On a linear chart (Primary Chart above), price pushed through the down trendline briefly, setting up a bull trap for those thinking the trend structure might have changed. But price fell back below quickly, a sign of exhaustion and a reinforcement of the very trendline that caused the exhaustion and reversal lower.It appears the downtrend at the primary degree has resumed, and even if sharp rallies occur again, as is typical of bear markets, new lows will likely be reached in 2023.
In the process of declining after failing at resistance, AMD cut through a key Fibonacci level of $63. It also broke below a critical anchored VWAP from October 2022 lows.
Price targets are identified in the summary section above. But note that two alternative projections both result in a price target around the $47-$48 range. Both these projections rely on a "measured move" and Fibonacci approach (linear chart). Both these projections are .618 projections of prior major legs of decline. And they end up right near the very long-term VWAP from 2015 (dark blue) which is at $48-$49. Lastly, note that the log chart shown in Supplementary Chart 1 has a key measured-move, 1.00 Fib projection at $45.
Supplementary Chart 1
Past Analyses
AMD's severe downtrend has been discussed in several recent posts in 2022. In May 2022, SquishTrade applied technical analysis to conclude that AMD, which then traded at $94.24, would see more downside in price in the coming weeks and months. A downside projection of $60-$63 was discussed in May 2022, and that was later achieved when price hit $63.34 in September 2022. See the May 2022 post here.
Later, on October 6 2022, SquishTrade provided a more thorough discussion of the technical evidence supporting the continuation of the primary trend downward. See Supplementary Chart A below. Despite substantial rallies in tech stocks, including other chipmakers like NVDA, and large-cap tech stocks like AAPL, nothing has materially changed in the structure. In fact, even if more rallies lie ahead, AMD trend structure will take a lot of work to change.
Supplementary Chart A
When AMD reached a low in mid-October 2022, SquishTrade posted a warning that risk / reward for shorts was poor at the time. Supplementary Chart B. The post noted that AMD's price was near multi-month support and that "an extremely sharp bear bounce could occur at any time. Just look at the prior rallies . . . . 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 B
But despite that major rally that was imminent, nothing had changed with regard to AMD's larger downtrend structure. That remains true now: AMD remains in a severe downtrend that has shown no evidence of structural change.
Another post in October 2022 noted the possibility of the $55 zone of support being significant was also discussed. See Supplementary Chart C. That post, however, was mainly to provide a brief snapshot of AMD's price "at the secular level of trend," which is a multi-year view (longer than a primary trend view which tends to be 9 months to 2 years). The October 30, 2022, post stated: "It's clear that in the intermediate term, bulls need to hold AMD's price above $54-$55 or else the next major level to the downside comes into play." But SquishTrade noted that the level may be retested in the coming weeks to months.
Supplementary Chart C
The time is likely approaching for a retest of that $54-$55 level. The current viewpoint will be discussed below along with reasonable price targets for 2023
Note
AMD fell below the long-term VWAP intraday, but then it recovered back above. This is a failed breakdown, and it's short-term bullish. The shape of the candle on the 2D chart above also is a bullish candle with a long lower shadow. But the nature of the candle is only reliable for a short time, and it's performance as a reversal isn't that reliable. Click the refresh / play link on the primary chart to see how it acted today 1/6/22. But given the strength in indices today, short-term bears should remain cautious and patient (avoid jumping in blindly on a bear rally). We don't know how long this rally will last, but the overall structure will take a LOT of work to change, and the downside targets will continue to remain valid until that primary trend structure changes. So longer-term, the downside viewpoint remains very much intact.
Note
Placing this idea on hold until the rally looks complete. Given the downside targets on this stock, the idea was intended to be longer term. But it's good practice to step aside when another rally looks underway. Want to allow that to play out before re-activating this idea. So temporarily stopped. Here is the down TL on a linear chart. Price made a close above the TL. But look at all the other false breakouts as well (Pinocchio bars as some technical experts call them).
The down TL on a log chart below (yellow line) is still valid but it's a ways above price. It provides resistance in the mid-70s depending on the day it is intersected by price.
ST reiterates that the reversal candle on the 2D, breaking below key levels (as discussed in the prior comment above) and then reclaiming those levels with a long lower shadow means that some sort of rally could well be underway. Until that rally materializes, this idea will be stopped and placed on hold.
Much will depend on CPI. If CPI makes markets think longingly about the possibility of Fed pivots and pauses, then markets may rally hard till end of January.
Stay tuned.
Trade closed manually
On January 10, SquishTrade placed this idea on hold. It continues to be "on hold." The macro thesis for new lows remains intact. However, it remains unclear as to timing. AMD broke decisively above its down TL much like many major US indices and stocks. This creates greater uncertainty as to timing. For now, this idea will be closed. If readers are interested, SquishTrade may publish an update on AMD when price action creates somewhat more clarity. Trend traders may do well to step aside for now.
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