AMD was a down and out stock by Feb 2016. The company posted a massive $660 million net loss in 2015. The bad fundamental state of the stock was there in price action for everyone to see. The Resistance at 100 week moving average around level of $3 pretty well defined
AMD company was in a bad state despite being recognizable number 2 in its core market:
1. PC CPUs (competing with Intel)
2. Graphics Cards (competing with NVidia)
The market was fearful that AMD is losing marketshare to Number 1 and erosion will continue. Meanwhile - AMD announced the release of its new Graphics card: Polaris in direct competition with NVidia Pascal. Then On March 16, a rumor surfaced that Intel was interested in licensing AMD's graphics patents. It was a sign that things are happening and market listening but stock was still Avoid for most of the folks
Then around middle of April - AMD did a deal with Chinese players
The market reaction was stunning, to say the least:
AMD is up 37% today...why? Because market thinks a Chinese company will help it turnaround
— Deepak Singh (@smarket) April 22, 2016
The Newsflow resulted in Momentum Breakout: Sign of Turnaround
Should one Buy after such a big move
Breakout is usually close your eyes and Buy stuff. AMD stock was no different
Even after 37% move on a single day - AMD stock made a move from $4 to $12 in following 9 months. That's what Breakout does.
When a stock breaks out, then don't worry about Fundamentals. The newsflow usually is positive. AMD started the breakout with Chinese deal and then by year end - did a mega deal with Google. Google announced that it will add AMD's Radeon-based FirePro server GPUs to its cloud platform in 2017
Now - This is what AMD has done in 2017: Traded sideways which is what stocks do after a big rally
AMD stock is a great example of how Price Action can be used to make sound investing decisions without reading Balance Sheet, P&L account. Next time - don't worry if a stock makes a big breakout move. It still can be a great opportunity.
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers