Best to buy AMD after a breakout – Here is what technical indicators show

The post-pandemic era has never been satisfied with the number of chips in supply. Top chip designer Advanced Micro Devices, Inc. (NASDAQ:AMD) understands this and has capitalized on the supply crunch to maintain growth. Of course, chip issues will not last forever and an oversupply of the critical component used in tech could hurt AMD.

Expectations of cooling chip issues could have played a part in the decline in AMD to a low of $102, after touching a high of $164 in November last year. However, we interpret the decline in the stock as an opportunity to buy. But here is a disclaimer:

AMD eyes a breakout – Will it break higher or lower?

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Technically, AMD found support at $102. This is a key area where the stock has tested severally in the past. The area also supported prices before a strong rally that started in October last year. However, the stock has traded along a descending trendline.

Together with the support, the trendline forms a descending triangle, indicating that the bearish move is not over yet. Although we strongly believe AMD could rebound from the key support of $102, we need to wait for a break-out which can occur either way.

A break-out above the descending triangle while holding the $102 support intact will confirm a bullish reversal and open a buy trade. Similarly, a breakout that breaches the support at $102 will take AMD to the next support at $94. Either way is possible at the current price.

However, the odds are for a buy trade given that AMD serves a critical area experiencing a supply crunch. The war in Ukraine could also escalate chip issues and benefit AMD.

Summary

AMD is not yet a buy as the stock approaches a break-out zone. We need to wait for a breakout from the descending triangle to confirm a buy trade.

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