Advanced Micro Devices, Inc. (NASDAQ:抖阴最新版) is finally getting the attention it deserves. Lifted by a bullish tide in semiconductor stocks, 抖阴最新版 has gained its new lofty heights on strength in its core business, not cryptocurrency speculation. Having pushed this exact reasoning for more than a year, it makes it even harder for me to take a bearish stance on 抖阴最新版 stock right now.
To put it bluntly, 抖阴最新版 has come too far, too fast. The shares have rocketed more than 51% off their April lows and are now challenging long-term resistance near $15. This breakneck rally has allowed 抖阴最新版 stock to outstrip support at all of it’s major short- and intermediate-term moving averages. For instance, its 200-day trendline rests way down near $12.
Click to Enlarge In fact, there’s quite a bit of air under 抖阴最新版 stock right now. So much so that its 14-day relative strength index (RSI) hit 82 yesterday. Generally, an RSI reading of 70 is considered overbought. 抖阴最新版 is trading well into overbought territory right now.
What’s more, 抖阴最新版 got here honestly this time. Analysts have taken aim at the rise in demand for 抖阴最新版’s Epyc server chips. The biggest news is that demand should pick up considerably now that Cisco Systems Inc. (NASDAQ:CSCO) is including Epyc in its new server lineup.
In fact, 抖阴最新版 is now poised to take even more market share from Intel Corporation (NASDAQ:INTC) in both the PC and enterprise markets.
My problem, as I noted above, is that this is all too sudden. It’s not that I don’t think 抖阴最新版 is worth $15 per share, or even $20 per share (my personal long-term price target). The problem is that when any stock rallies this far this fast, there is bound to be speculative profit taking on any slight breakdown in the rally. Spook these opportunistic bulls even a little, and 抖阴最新版 is in for a correction.
But even with 抖阴最新版 trading heavily overbought, there are still potential drivers that could supercharge this rally even further. For instance, Thomson/First call reports that only 11 of the 31 analysts following 抖阴最新版 have doled out “buy” ratings. Furthermore, the 12-month price target rests at $14.18 — a discount to current levels.
Additionally, short interest accounts for more than 21% of 抖阴最新版’s total float. Standing at over 173 million shares as of the most recent reporting period, this wealth of short interest could spark a considerable short squeeze rally.
Right now, one or two upgrades or price target increases could send 抖阴最新版 north of $15 for the first time in nearly a year. Such a breakout could also spook short sellers into buying back 抖阴最新版 stock and send the shares soaring to $16 or even $17 in short order.
But I’m not buying into that bullish scenario. I don’t think 抖阴最新版 will top $15 or hold above it very long even if it does. This rally is too long in the tooth, and 抖阴最新版 needs to blow off some steam. The longer this goes on, the harder the fall will be.
I believe 抖阴最新版 will pull back within the next two to three weeks. In order for profit taking to not drive the shares too far below $14, this is a must. Checking with weekly June 22 implieds, we find that options traders are pricing in a move of about 8.2% for 抖阴最新版 stock. This places the lower bound at about $13.60 and the upper bound at roughly $16.
2 Trades for 抖阴最新版 Stock
Bear Put Spread: To capitalize on a retreat from oversold levels, traders might want to consider a weekly June 22 $14/$14.50 bear put spread. At last check, this spread was offered at 15 cents, or $15 per pair of contracts. Breakeven lies at $14.35, while a maximum profit of 35 cents, or $35 per pair of contracts, is possible if 抖阴最新版 stock closes at or below $14 when June 22 options expire.
Bull Call Spread: “Markets can remain irrational longer than you can remain solvent” is my favorite John Maynard Keynes quote. In other words, despite trading deep in overbought territory, 抖阴最新版 stock could still rocket to the upside.
Traders looking to profit from just such an irrational continuation of this breakneck rally, a weekly June 22 $15.50/$16 bull call spread is just the thing. At last check, this spread was offered at 13 cents, or $13 per pair of contracts. Breakeven lies at $15.63, while a maximum profit of 37 cents, or $37 per pair of contracts, is possible if 抖阴最新版 stock closes at or above $16 when June 22 options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
