Managing Editor’s Note: Today, we’re handing the reins to longtime colleague and market wizard, Larry Benedict.
As a legendary hedge fund manager, Larry focuses on finding winning trades in any market. And today he’s sharing his strategy to play this current tech rally.
Here are Larry’s insights on what’s in store for tech…
Nvidia (NVDA) has captured most of the tech rally headlines. But another chipmaker also enjoyed some outsized gains…
Advanced Micro Devices (AMD) rallied, gaining 141% from late October to its March 8 high.
That’s the date that both NVDA and AMD peaked before rolling over and retracing lower…
NVDA has since recovered most of its ground. But AMD was languishing about 30% below its March peak.
Today, let’s check to see what it will take for AMD to rally from here…
Bearish Sentiment
After hitting its peak on March 8, AMD soon reversed.
As the chart below shows, that coincided with the Relative Strength Index (RSI) forming an inverse “V.”
The RSI fell sharply from overbought territory (upper gray dashed line). Then it dropped into the lower half of its range.
Advanced Micro Devices (AMD)
Source: eSignal
The blue moving average convergence/divergence (MACD) line also crossed below the orange signal line. Both then tracked into their lower range. That’s bearish.
Adding to the bearish sentiment, the 10-day MA (MA, red line) crossed back below the 50-day MA (blue line), with the 50-day MA also tracking lower.
And in late April, the slightest earnings miss caused AMD to gap lower. Earnings per share beat estimates while revenue only just missed.
So what should we look for next?
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Crossing the Zero Line
In the chart you can see that the RSI has recently broken up through resistance inside the orange circle.
Take another look…
Advanced Micro Devices (AMD)
Source: eSignal
What happens next will be key…
If the RSI can gain further traction, it will help convert AMD’s recent strength into a genuine up move.
The longer the RSI can remain in positive territory, the bigger that move could be…
The other thing to keep a close watch on is the MACD. As you can see, AMD’s recent move higher coincided with the MACD line crossing above the signal line, with both tracking higher.
From here, the MACD crossing up through the zero (0.00) line and into its upper range would help AMD move higher.
Longer term, we’d then look for the 10-day MA to cross back above the 50-day MA, with both MAs then tracking higher. That would give us further confirmation of an emerging up move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict