If you haven't read it yet, then go back and read this weeks stock of the week column on the SOX index and AMAT, before reading today's daily setup. To summarize the article, Mike B. wrote that he thought that the index was on the verge of breaking down, and taking the stocks in it and related to it down with it. Guess what, the index broke down, and many of the related stocks are on the verge of collapse. AMD is one of those stocks.
This stock was one of the only stocks that ran higher during the March/April sell off. At a first glance at the chart, the stock looks like it is forming an upward trending triangle, which is a bullish consolidation. It seems like the stock is trying to digest the big gains made from its run since the end of last October. But if you look at the volume action throughout the consolidation that started back in May, the picture gets outright bearish.
Over the 12+ weeks the stock has been consolidating, it has logged 20 distribution days compared to 6 accumulation days, 5 of which came on pretty lame volume. The other one, on 6/5, the stock tried to breakout on higher volume, could be considered a distribution day as the stock ran up on high volume and closed in the bottom of that days range. Notice also the large amount of spikes in volume on down days. The last six days alone have logged 3 distribution days.
Intel the leader in AMD's category has come under heavy distribution lately too. The report on slowing PC sales, doesn't help the stock either, as its micro processor division makes or breaks the company. The breakdown in the SOX is a further negative and could be the final straw that breaks this camels back.
Anyone who reads Investors Business Daily should've taken notice that even as the stock was approaching its highs, the accumulation/distribution rating, which measures institutional buying or selling interest, was a D, signaling that institutions were unloading their shares. This rating and the volume spikes on down days gave you two of the best clues that the stock was resting only to go lower. It looks like the institutions were unloading the shares while the news was good, and amateur investors were scooping it up not to miss the next leg up. It looks like their not going to enjoy the next leg down as it kicks them in the balls. Maybe the big boys know something we don't. Hmmmmm? Only time will tell.
This stock look like a short under 76.5. The stock is just on the edge of breaking down below its 2 month up-sloping trend line. It actually broke the trend line today on heavy volume, but managed to close just on the border. Look for a continuation move down tomorrow, and enter if you can handle the potential volatility. Conservative short players may want to wait for the stock to take out its July low of 72 1/2, as this level could act as initial support from the trend line breakdown. The next support level is 66, the May low, after that the stock could fall to 61, and finally the 200 day moving average at around 48. Follow the SOX index for clues as to when and where the stock may find a bottom.
Just to let you know, I shorted the stock today at 76 1/2.
Remember: 7% stop losses from your buy point on all trades, or whatever you're comfortable with. Preserve your capital, and you will live to fight another day. Lose it, and back to mutual funds you go.
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