<<A TA look at AMD, and today :-) >>
boards.fool.com
Makes a lot of sense.
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Tech analysis is just one factor to be considered in looking at a stock. Of course, in
AMDs current situation, base building doesn't happen BECAUSE TA says it needs to.
TA just recognizes that cycles do repeat.
We all know the future outlook for AMD, but remember, for those not as inclined to
look forward, or less informed, the 1 year trailing P/E when we were looking at a price
of 92 may have seemed unreasonably high to many investors.
This set the stage for the current base building, and it's lower prices, to begin. During
such a period, when the market "perception" (false or not), says that the current price
makes the stock overvalued, any negative rumors have a greatly exagerated impact on
the downside, while good news goes largely ignored.
The base period brings you forward in time, until you get close enough to the next
milestone, so that the market in general can accept the forward looking picture over the
trailing evaluation of "reality".
In other words, as we get closer to Q2 earnings, with the company guiding that
predictions remain solid, more investors are willing to "believe" the forward looking
guidance and use those numbers for their evaluation of the "fair value" of the stock.
My hope is that early June, with the introduction of the new processors, will be close
enough to Q2 earnings, that the positive news will out weigh the false perception that
AMD is "overvalued".
In TA, base building isn't some mystical force that effects the stock price in spite of
"reality". It is just an observation that a trend is repeated over and over again. When a
stock is as hot as AMD, the trend up can bring you to the "perceived" fair value well
before the next event, likely quarterly earnings, occurs to justify higher prices using
trailing indicators.
Once a stock enters a base building period, there are other cycles that repeat, the battle
between bulls and bears on the stock price. This leads to a cycle in the base period
where the bears pull the price down, until the bulls see a big value, and rally the price
back up again. If the rally reaches the point again where there are enough bears that feel
the price has reached fair value again, they will lead the price lower again, often below
the previous low.
This cycle can contiunue a number of times, until a rally takes place where the overall
bullish sentiment is strong enough to prevent another deep slide, then the stock can
break the hold of the bears. At this point, the percentage of investors willing to base
values on the future numbers outstips the bears basing them on trailing ones. The
"pardigm" shifts, and the stock moves higher to the next "perceived" fair value. :-)
TA goes further, volume on moves can signal where a stock is in any part of the current
cycle or sub cycle.
When the stock goes up on ever dwindling volume, but doesn't "break out", the rally is
likely to sputter. If there is a good up day on LARGE volume(usually defined as volume
clearly above the moving average for volume), five to ten trading days into the current
rally, you are very likely to break out of the basing cycle, and trend clearly higher.
On the downside, a down day with HUGE volume shows that the bears are buying
almost as quickly as the bulls are selling, preventing any even sharper drop off that the
bears would prefer. Meeting such strong resistance, the bears, for the most part, "give
up", and the bulls are free to attempt the next rally.
That's the very basic idea behind TA, at least as applies to AMD right now. :-)
Yesterday, we went down on HUGE volume. The likelyhood that we would have a
second day down on even larger volume was remote, but that's what happened.
The fact that the downswing was less at days end, and the volume even higher than the
huge volume from the day before, very likley indicates that today is the REAL bottom in
the current sub cycle.
Today's volume of 10.73 million was the highest since Q1 earnings, and was stronger
than the peak in volume with the last low point on May 10th. The volume indicates that
the "tug of war" between the bulls and the bears on AMD was at it's most intense
today. The fact that the stock rallied from an intraday low of 66 is a very good sign.
It is very likely, on the volume we saw, that the majority of bears have "sold off" most
or all of their AMD, which should lead to a rally by those of us who see AMD as
undervalued.
IF the new product announcements, likely on June 5th, ARE positive enough at that
point in time to get the majority of AMD investors looking forward for stock value
instead of behind, the timing will be very good for a difinitive break out of this base on
or around the 5th.
The 5th of June would be the 9th trading day in the newest rally, assuming the next rally
attempt starts tomorrow. This would be with in the ten days that a rally usually needs to
see a break out day if the rally isn't to fail.
The best trend to look for would be price trending upwards as volume trends
downwards, THEN having a day with the price up on very goog volume. This almost
always signals that the rally will "break out", and the base period will have ended.
We'll see what happens, but that's what I'll be watching for, for those who want to "play
along at home". ;-)
One note, IF this next rally doesn't break out, we will likely set up with a down then up
cycle that may bring us very close to the actual end of Q2, and if that rally failed,
another cycle that would time pretty closely to the actual Q2 earnings announcement in
mid-July.
I'm hopeful this next rally, leading up to the June 5th new product announcement, will be
"the one" to break out. If not, however, we could see one or two more cycles leading
up to Q2 earnings reports, when we would almost certainly break out, if we don't so
before then.
The closer to Q2 earnings we get, the more likely each rally will succeed. :-) |
