Adv. Micro Devices (AMD) - Jan 16th 2024
(Preparation + Edge) × Opportunity = Profits
Higher timeframe context
AMD and the whole semiconductor industry have been leading the market for the past few months. The recent $500 breakout on NVDA has been pushing the semis even further. We've gone through a few of these plays already, and have been commenting on the relative strength of AMD for days now. We even used it as a sympathy play to profit off the NVDA breakout itself.
Today we go over one of the easiest trades I've taken so far this year, placing special attention on how we identified this opportunity and the mistakes made once in it.
Weekly chart
Very healthy uptrend on this weekly chart following a 5-month long consolidation. Ever since price broke out, every dip is getting bought pretty much immediately. We keep setting new 52-week highs as the stock approaches the 2021 all-time high.
Daily chart
All I see here is an impulse move into previous swing highs, with a healthy pullback. The last daily bar closed as an inside bar as price is resting while setting up for a potential move higher. In general, inside bars can give entries to both sides. But in this case, because price is trending, we're only interested in taking longs above the inside bar high. So that makes Friday's daily candle a potential signal bar for us to gauge daily bias for the coming days.
Hourly chart
Hourly chart looks great too, but a bit crowded level-wise until $151, which not surprisingly matches the 52-week highs we put in the last day of 2023. Keep in mind that we also have a level at $150.05, very close to the $150 big round number, which makes it a huge psychological level. It won't go unnoticed.
If price triggers the daily inside bar buy and can get above $150, there's a high chance that $151 will get taken out as well. Why? Because we already rejected twice there, and we’d now be coming from a healthy pullback after the second failed attempt. If bulls attack again from these levels, it's likely we'll break.
If we do break, not only there's room to move in terms of levels, but more importantly, there's a bunch of stops from sellers shorting that daily double top that will get triggered as they're forced to cover at a loss, pushing the stock even further.
Pre-market action
This is what caught my attention and essentially made AMD my top watch for the day. Absolutely killer pre-market move, setting up for a breakout of the crowded area we just talked about. Notice price is already above the $150 psychological level we discussed, hence why my gameplan called for bounces at this level targeting the first major level above the $151 area, which is $154.41.
The trade
It doesn't get easier than this frankly. This was a buy and hold trade that was super straightforward. The key was identifying the cues and executing at the open. The rest was a matter of holding to target (and beyond).
Using our CPT Framework:
Cue(s)
Market-leading stock in a strong sector
Weekly uptrend near 52-week highs
Daily inside bar buy setup triggering in the pre-market
Stock up over 2.5% in the pre-market session
Stock set to open above the $150 psych. level
Room above with daily double top buy stops triggering
Plan
The plan was simple and outlined beforehand. Bounces off the $150 level. That’s it.
Trigger
Price getting back above the opening print.
5m chart
This trade was not hard to catch. I'm dead serious, it wasn't that fast. You had time to watch it hit the $150 level, hold there, and come back above the open. At that instant I got it in and it was just a matter of holding.
Despite catching 12R, I can’t classify this as a great execution. I personally failed on two fronts:
Adding to my winner
Holding until there was a reason to sell
Let's go over the trade bar by bar:
Bar 1 was our entry. Right when price reclaimed the opening print. The trade works immediately and the bar makes new 52-week highs and closes above the $151 cluttered area.
Bar 2 is an inside bar with a bullish close and long bottom wick. If you missed the open, this was a good signal bar to prepare a long entry.
Bar 3 triggers the inside bar buy we just mentioned, and was a good place to either jump in or add to an existing position, risking bar 2 lows.
Bars 3 and 4 are again very close to what we refer to as a 3-bar play setup. Again, bar 4 could be used as a signal bar for another entry. I did not mark this one because the risk-to-reward risking bar 4's lows, considering the $154.41 level above, was not worth it.
Bar 5 is an inside bar that again can be used as signal bar for a 3-bar play setup. While we do have a level above, this entry could be taken if you're expecting the level to break. Keep in mind, so far no bar has breached previous bar lows, so the trend is quite strong.
Bar 6 triggers the 3-bar play setup and closes strong above our first target level. There’s still no signs of weakness. I didn't sell anything here because there was no reason to. I thought I'd hold until the next level.
Bar 7 hits the second level and again manages to close above. Here's where I messed up. I got out of my position while there was still no reason to.
Bar 8 barely retests the level and again pushes strong into a new high of the day.
Bar 9 breaches the next level and again finds little resistance. Price even retests the level and climbs a little bit further up before we get our first pullback.
Bar 10 is the first pullback of the day and, more importantly, it's the first time a previous bar low is breached. Caption this and go back to the chart.
This last variable is what got to me the most. No bar up to that point had come even close to breaching the previous candle's low. There were no pullbacks, none. It was such a simple hold, yet I somehow did a poor job with my exit.
Closing notes
You'll rarely buy the bottom and sell the top. That's not what we're here for, it’s not what trading is about. But you are here to capitalize on these kinds of trades.
It's rarely this easy, but when it is, you're expected to perform.
I am posting one trade writeup every day throughout 2024. I focus on large caps using levels and price action. The subscription is absolutely free and will always be. I will strive to provide value by offering clues and ideas for you to enhance your edge. Let’s grow together!