Advanced Micro Devices Inc. (AMD) completed a two-month head and shoulders topping pattern on Monday, raising odds for a breakdown that targets psychological support at 100. Accumulation, as measured by On Balance Volume (OBV), has dropped steadily since the stock carved the left shoulder in November, in another sign that shareholders are taking profits and moving back to the sidelines. Of course bulls could save the day, as they often do, but its best to prepare for a volatility surge as market participants react to the set-up.
Semiconductors Under Pressure
Chip stocks have had a tough time so far in 2022, with the PHLX Semiconductor Index dropping nearly 10% in five sessions into Monday’s midday low. The decline is worse than it looks at first glance because 400-lb gorilla and perennial laggard Intel Corp. (INTC) has gained 7% so far this year, skewing broad sector averages. NVIDIA Corp. (NVDA) highlights typical damage to 2021’s biggest winners, dropping 13% before Monday’s bounce.
Advanced Micro Device’s 2022 outlook remains strong but fundamentals may not power the upside because growing worries about rising inflation could undermine buying interest. CEO Lisa Su outlined the bull case in a Monday interview, noting her expectations for a strong year, powered by new chips for laptops and commercial PCs. She also confirmed “very strong” demand that’s forced AMD to ramp up supply and chatted up new investments in artificial intelligence.
Wall Street and Technical Outlook
Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 19 ‘Buy’, 4 ‘Overweight’, 15 ‘Hold’, 1 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $115 to a Street-high $180 while the stock is set to open Tuesday’s session about $9 below the median $144 target. A short-term bounce looks likely, given this humble placement, but a rally above 155 is needed to negate the bearish pattern now in play.
Advanced Micro Devices cleared 20-year resistance in July 2020, entering a multi-legged advance that lost steam above 155 in November 2021. A breakout attempt three weeks later failed, carving the head of the H&S pattern, while the December bounce failed at the early November peak. The selloff since that time has reached the neckline in the mid-120s, with 20 to 25-point downside potential into the 100 level, which also marks support from the July breakout.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire