With the trade war making daily headlines, it’s anybody’s guess where we’re headed. But semiconductor stocks Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) can help spread that risk as a nice-looking pairs trade which goes long AMD stock and short INTC stock.
As a group, semiconductor stocks and the Vaneck Vectors Semiconductor ETF (NYSEARCA:SMH) have been challenged by an escalating trade war between China and the U.S. But don’t think for a second the trade war is the end all, be all for AMD stock and INTC.
To be sure, exposure to increased tariffs on our favorite gadgets from companies such as Apple (NASDAQ:AAPL) is a problem for chip stocks. The combination of higher end prices for consumers leading to lower demand, as well as the fabrication and assembly of chips into those products occurring in China is an albatross hanging over investors. I understand. Bottom line, the consequences could be very costly.
Still, within this ever-volatile narrative and beyond the macro headlines, shares of Advanced Micro Devices stock and Intel stock are diverging strongly off and on the price charts backed by company-specific drivers. Ignoring this could prove very costly for investors.
AMD Stock: Bullish
The Computex trade show over the weekend was a well received story for Advanced Micro Devices price-wise. It’s also the latest AMD news in a string of bullishly-supportive stories ranging from earnings to a substantial U.S. Department of Energy contract win in recent weeks.
Shares finished up nearly 10% on Tuesday after investors, supported by favorable analyst accolades, cheered AMD’s unveiling of soon-to-be released 3rd generation Ryzen chips and graphics cards aimed at the PC and gaming industries which feature competitive specifications at lower prices. That’s a win for consumers.
AMD’s CEO Lisa Su also announced the company’s 2nd generation Epyc server chips are slated to be released in Q3. Similarly, that sounds like a win for businesses too.
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On the price chart Tuesday’s enthusiastic bid also reaffirmed a bullish trend on the AMD stock chart. The above-volume thrust sets up a breakout of a tight multi-week consolidation above $29.95 within a larger corrective base. And that could be a big win for investors.
The recommendation for AMD stock is to put shares on the radar for a breakout entry through $30.25. That’s 1% above the high of the current congestion pattern.
On the upside, I’d look to take initial profits as shares challenge 2018’s relative high of $34.14. To keep exposure contained, a trailing stop of 7% to 8% looks about right off and on the price chart.
INTC Stock: Bearish
Those same chips which had AMD stock investors celebrating so strongly Monday come at the expense of INTC stock. The company is still the world’s largest semiconductor manufacturer by a wide margin, but increasingly a resurrected AMD is becoming a very real competitive threat for Intel.
Following AMD’s newest chip challenge, Intel’s Core i7/i9 processors appear to be at increased risk according to Wells Fargo.
On the INTC stock price chart, the growing business challenges Intel is facing has resolved itself into a quick corrective move. It’s also a correction I don’t see as being finished.
Technically, the argument for a bottom in INTC stock can be made. Shares are testing a couple Fibonacci levels, as well as Intel’s market-bucking relative low carved out in October. The challenge has also formed a bullish weekly hammer candlestick as of last Friday. But be warned.
If shares fail to hold pattern support, the opportunity for a profitable short position in INTC stock looks very favorable. The interpretation is Intel’s fairly wide and loose support area beneath today’s immediate technical support will allow shares to move much deeper into this price zone before a meaningful bottom emerges.
The recommendation for shorting INTC stock is to use an entry below $42.74 and slightly beneath the weekly hammer. I’d keep the initial exposure contained to $45.20. This exit is modestly above the high of the bullish candlestick, which combined with trade risk of less than 6% is smart business off and on the price chart as part of a pairs trade with AMD stock.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Advanced Micro Devices (AMD) and its derivatives but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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