Advanced Micro Devices Stock Flashing Red-Hot Buy Signal

AMD has cooled from its all-time highs earlier this month

Deputy Editor
Sep 10, 2020 at 12:18 PM
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The shares of chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) seem to have had a rocky run on the charts since notching a Sept. 2 all-time high of $94.28. The equity recently succumbed to pressure at its previously supportive 30-day moving average and month-to-date, AMD is down 10.1%. Investors shouldn't be discouraged just yet, though, especially considering a bullish trendline has just emerged. And if history is any indicator, it could send the stock right back up the charts. 

According to a study from Schaeffer's Senior Quantitative Analyst Rocky White, AMD just came within one standard deviation of its 40-day moving average after a lengthy period above the trendline. White's modeling shows six similar signals occurring in the past three years. One month after these signals, AMD was higher half of the time, and averaged a one-month return of 4.7%. A similar move from AMD's current perch at $81.80 would put the equity at $85.65 -- back north of its 30-day moving average. 

AMD Chart September 10

The stock could benefit from a round of analyst upgrades, too. Currently, 13 analysts call AMD a "buy" or better, while 11 still say "hold." Plus, the consensus 12-month price target of $78.08 is a 4.6% discount to current levels. 

The options pits are flashing a preference for calls across the board. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 3.25 calls were picked up for every put in the last 10 weeks. This ratio sits higher than 86% of readings from the past 12 months, indicating an unusually heavy appetite for long calls of late. 

Considering this, speculating on Advanced Micro Devices stock's next move with options looks like a prudent play. The stock's Schaeffer's Volatility Index (SVI) of 60% stands higher than 27% of readings from the last year. This means options traders are pricing in relatively low volatility expectations for the time being. 


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