AMD Advanced Micro Devices Daily Chart Oversold Positive Divergence

AMD was one of the casualties of the weak HPQ guidance which set off a firestorm of pundits pronouncing the death of the PC.  This is far too soon to proclaim especially since the tablet and phone sales are not particularly impressive. The disappointing news in computer makers such as DELL and HPQ is far more due to a non-existent recovery, as businesses are continually bad-mouthed and red tape and regulations continue to be thrown in their faces. It is a hostile business atmosphere these days that is preventing any significant economic recovery and thus preventing a PC refresh cycle from occurring.

On the weak HPQ news, traders ran to the parts providers, such as AMD, and took no prisoners, hacking at them until they lay in a bloddy mess behind the shed out back.  Note the large capitulatory volumes in September and October, over four times the average volume expected. When the HPQ news affected AMD in October, the second spike in selling volume is lower indicating a wash-out in price on tap.  Keystone was already using AMD sa a trading vehicle from the long side in September enjoying a couple nice pops and profits. The falling wedge and positive divergence, at the time, at early October, signaled nothing but blue skies and paradise ahead.  Then Meg (HPQ) decided to drop a nuke on the PC industry. Charts are always suceptible to any news surprise since it is not priced into the chart, and the HPQ tape bomb created carnage. The chart has the damage priced in now.

There were many trader's short AMD and to extract their pound of flesh, rumors and constant media bashing are part of the game.  Rumors circulated that bankruptcy lawyers were walking into AMD offices, media personalities were telling eveyone to run for their lives, the shorts were pressing the downside, and they received their pay day.  AMD is about 1.5 billion in market cap with about 1.3 billioni in cash and equivalents, so they have some breathing room agains their outstanding debts of 1.5 to 2.0 billion. Thus the bankruptcy talk was unfounded, although, as always, in trading you never know what may happen. It would seem the lawyers may actually be entering the building to conduct takeover or merger talks. Price is beaten down and for some of these large players with hoards of cash such as MSFT or AAPL, picking up AMD to have a dedicated supplier may be beneficial. AMD is increasing its relationship with ARMH, the darling in the mobile chip industry now. ARMH has a backlog of work they do not know what to do with, how smart it would be for these two to combine and allow AMD jump more solidly on the mobile train.

The main haircut for AMD occurred according to simple mathematics.  The pundits place AMD's business to be about 80% related to PC's and 20% other, so if the death of PC's has now occurred, that means 80% goes bye-bye.  AMD favored the 10 level so an 80% haircut is two bucks, the current price.  At least this provides a basis where the stock should not drift lower.  Keystone's 80/20 rule says a breach of 2 leads to 8, so the leeway must be provided that the price may still bottom at 1.7-1.9.  At this current 2.03 price, the chart is universally positively diverged now, the pesky money flow is playing games but it is in oversold territory so it cannot move much lower. The weekly chart is set up nicely with positive divergence as well so it appears the worst is over for AMD.

Keystone continues to hold AMD on the long side and will likely add on weakness. Projection is sideways to sideways up from here.  AMD took a hit with all the negative PC talk but should be fine here on out. Now if someone steps up to the plate to show an interest in buying them or otherwise forming joint partnerships, especially to expand the mobile market, the upside can be dramatic. AMD is a tricky play, all plays on this site are speculative, unfortunately this one was smacked due to HPQ's dire news after a textbook long set up, but it should recover moving forward. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.