Any veteran trader or investor will testify that it is one thing getting into a trade, but the hard part is getting out. Of course, investors with much longer time horizons do not lament getting the optimal exit as much as short-term or swing traders.
Monday’s show included a discussion of Advanced Micro Devices, Inc. (NASDAQ:AMD), which was the recipient of two upgrades Monday and is the PreMarket Prep Stock of the Day.
The first upgrade came from Baird, which upgraded the issue from Neutral to Outperform with a price target bumped from $65 to $100.
UBS upgraded the issue from Neutral to Buy with a price target lifted from $75 to $95.
PreMarket Prep co-host Dennis Dick, who exited his long trade on Friday, discussed the nuances he confronts when exiting trades.
Getting In: As opposed to day trading, in which Dick never doubles or triples down on losers, he got caught on the wrong side and decided to “triple down” at $56. In other words, he was so deep in the hole in the issue that he had tripled down during its extended decline.
Adding a larger size at a lower price greatly reduced his average cost for the entry. This can be a dangerous strategy if the issue had continued to move against him. In fact, this is the way many traders/investors end up “blowing up” their accounts.
Why AMD? After having nearly a 50% cash position in AMD, Dick did not want to miss out anymore on the recent rally. The issue was his choice for a few different reasons.
The first reason: he wanted to add a growth issue, as it appeared the sector was gaining momentum at the end of last week.
Also, he identified a bottoming pattern in AMD that was followed by a period of consolidation. Since Oct. 10, the issue had been in a well-defined trading range from the $54.67-$64 area.
Over the course of time, the issue put in place several daily lows between $56 and $58. This type of pattern sometimes indicates larger players coming into an issue and attempting to build a large stake in a well-defined area.
Finally, Dick noticed that AMD's peers in the sector, Nvidia Corp (NASDAQ:NVDA) and Micron Technology, Inc. (NASDAQ:MU), had been holding up and had begun to rebound.
Time To Ring The Register: From Dick's perspective, the move was overdone over the last week. From last week's low ($59.80) to Friday’s close ($72.37), the issue had a gain of $12.57 or 21%.
“Now two firms are coming to upgrade after its big rally. In my opinion, it is just too much too fast and from the low of the move it is up 33%," he said.
"My target was $70 and it was there in a few days. I would rather be early than late.”
AMD Price Action Moving Forward: After a much higher opening price ($75.22 vs. $72.37), it went another few pennies higher to $75.25 and reversed course. The ensuing decline found support just ahead of Friday’s close at $72.67 and began to rally once. Again. As of 2:30 p.m. EST, it was trading actively in the upper $74 handle.
If the rally continues, the next area of resistance would be the pair of highs from mid-September at the $78 area.
AMD ultimately gained 1.6% Monday, closing at $73.53.
The discussion on AMD from Monday’s show can be found here:
Photo courtesy of AMD.
