When we reviewed the charts of Advanced Micro Devices ( AMD) on January 4, we saw bullish clues and recommended that "Traders could go long AMD at current levels. Risk to $132 and consider adding to longs above $165. The $201 area is our price target for now."
Unfortunately that strength quickly fizzled and turned to weakness. Let's check again.
In this updated daily bar chart of AMD, below, we can see that prices quickly turned lower and broke below the 50-day moving average line. The slope of the 50-day line has turned negative and now prices are not all that far above the rising 200-day line.
The On-Balance-Volume (OBV) line shows weakness from November. The Moving Average Convergence Divergence (MACD) oscillator is bearish as it trends below the zero line.
In this weekly Japanese candlestick chart of AMD, below, we can see (with hindsight) upper shadows in November and December telling me, belatedly, that traders were rejecting the highs. Prices are still above the rising 40-week moving average line but this is a lagging indicator.
The weekly OBV line shows weakness into January. The MACD oscillator has crossed to the downside for a take profit sell signal.
In this daily Point and Figure chart of AMD, below, we can see a potential downside price target in the $99 area.
In this weekly Point and Figure chart of AMD, below, we can see an $83 price target.
Bottom line strategy: It can be discouraging to go long on a stock that looks promising and then quickly see it reverse direction. What did I miss? The charts of AMD are bearish and pointed lower. Avoid the long side and try not to be swayed by a bounce.
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We got a broad rally on Friday after a week of narrow action -- but once the debt ceiling news hits, the market will go on to the next stage of action.
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