The Best AMD’s Stock May Plunge Into A Bear Market

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Advanced Micro Devices Inc.Stocks (AMD) have already fallen 11% from their 2018 highs, and the worst may not be over. AMD is about to fall an additional 12% from yesterday’s closing price, according to a technical analysis, which would push the shares to more than 20% of their highs in a bear market.

That dark perspective amounts to a great reversal. Shares soared in recent months after Intel announced delays in the production of its 10-nanometer chip. But problems began Friday for AMD when Intel Corp.(INTC) announced that it was making progress on its 10-nanometer chip and was investing an additional $ 1 billion in capital expenditures to meet customer demand. (See: Intel traders see shares rise 8% amid increased forecasts.)

A 12% decline in AMD would be greater than some analysts have recently forecast. (See: AMD less attractive in ‘rich’ valuation, Intel pressure: Baird.)

Technical charts show that AMD shares have now fallen below critical technical support at $ 29.40. The next significant support level does not reach up to $ 25.70. The stock has been trending lower since reaching a technical resistance peak of around $ 34.50, a price the stock has not seen since 2006.

The Relative Strength Index (RSI) also has a downward trend after reaching overbought levels of nearly 87 in mid-September. It is the second time that the RSI has reached such a high level since the beginning of June. The RSI is now around 50 and would still have to fall to 30 before it reaches oversold conditions. Volume levels have been increasing on idle days, suggesting an increasing number of sellers.

Short interest increase
Short interest in the stock has also increased to 152 million shares at the beginning of September, and accounts for almost 16% of outstanding shares, a high level. For example, Tesla Inc. (TSLA), which is another highly shorted stock, has about 20% of its shares outstanding, where Intel is less than 2%.

AMD stock percentage Outstanding Short chart
AMD percentage of Outstanding Shares Short data by YCharts

Expensive actions
AMD is the most expensive of the top 25 holdings in the iShares PHLX Semiconductor (SOXX) ETF. In a 2019 PE ratio of almost 43, it is more expensive than Nvidia, which is trading at a PE of 33 and the second most expensive stock. AMD shares have been on a parabolic rise in recent months in hopes that it can take Intel business. Now that Intel is on the offensive, AMD’s shares may be forced to retreat even further.

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment advisor, and the manager of the company’s long-term Thematic Growth Portfolio and active management. Kramer typically buys and holds shares for a duration of three to five years. Click here to view Kramer’s biography and portfolio holdings. The information submitted is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of specific securities, investments or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and / or tax professional before implementing any strategy discussed in this document. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.


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