Shares of Advanced Micro Devices (AMD) slid 4% on Wednesday putting the stock in a perilous technical position.
The entire semiconductor sector suffered losses on Wednesday. Semiconductor stocks dropped following news that the Biden Administration plans an additional round of restrictions on AI chip exports.
News sent the VanEck Vectors Semiconductor ETF 0.71% lower, but AMD stock was one of the worst performers in the group.
AMD’s poor performance is rooted in its decidedly bearish technical trend.
Shares of AMD shifted into a bearish trend in November as the stock’s 50-day moving average rolled over into a declining pattern. Historically, a stock with a declining 50-day moving average has a 67% chance of closing lower each day.
The bearish pressure has pushed AMD shares to a tipping point.
Wednesday’s close has shares hovering just above $120. This price is significant for a few reasons.
First, the stock posted its 2024 lows at $120 in August. Since then, AMD stock has been able to rally as high as $225, but now finds itself right back at those lows of $120.
Second, options traders have been building a stronghold of puts at the $120 strike price.
This indicates that the options market is preparing for a decline below that key price level. A fasy and aggressive move below that price would trigger a series of hedging responses that could include shorting shares of AMD.
For those reasons, investors should consider the $120 the “Trigger Price” for a wave of selling on AMD stock.
From a long-term perspective, AMD has been in a bear market trend since December. In December the stock broke below its 20-month moving average.
AMD maintains a bearish outlook with a price target of $100.
