Earlier in the series, we saw that Advanced Micro Devices (AMD) is a very volatile stock with a beta of 4.06. Hence, it has a higher three-month average daily volume of 120 million compared to Intel’s (INTC) and NVIDIA’s (NVDA) 25 million and 10 million, respectively.
October has been weak for AMD, with the stock falling below its 50-day moving average. However, its overall momentum is still positive, with the stock up 127% year-to-date. When a stock’s momentum is higher than its average volume and is skewed in one direction, there comes a point when it becomes oversold or overbought.
When a stock is oversold, it’s unlikely to fall further, creating a buying opportunity. Similarly, when a stock is overbought, it may see some correction, creating a selling opportunity.
Relative strength index
The RSI (relative strength index) is a technical indicator that measures the intensity of investor sentiments. RSI is measured on a scale of zero to 100, with less than 30 indicating that a stock is oversold and greater than 70 indicating that a stock is overbought.
On October 19, AMD’s RSI stood at 36, while Intel’s and NVIDIA’s stood at 38 and 33, respectively. All three stocks had RSIs of between 30 and 40, indicating that investors were in “sell” mode. However, none of the three stocks’ RSIs dipped below 30, showing that some investors were still holding on.
Interpreting the RSI
AMD was overbought until September 27 with an RSI of 70.6. Once a stock is overbought, a correction usually follows. Between September 27 and October 19, AMD’s RSI fell from 70.6 to 36. It’s possible the stock could dip further. If its RSI falls below 30, an upward movement could follow.
Overall, the technical indicators show that AMD stock is overreacting to the noise and could dip further. However, it will likely revive on any positive news, such as its fourth-quarter earnings guidance, which it’s set to announce in its upcoming earnings release on October 24.