Stock Of The Day: AMD's Bullish Momentum Faces Resistance Despite $4.9B ZT Systems Deal

Advanced Micro Devices, Inc. AMD has recently announced its acquisition of ZT Systems, a key provider of AI infrastructure for hyperscale computing, in a deal valued at $4.9 billion, including a potential earnout of up to $400 million.

Interestingly, technical analysis reveals patterns that often reflect the underlying psychology of investors, regardless of the security being traded—be it stocks, ETFs, bonds, or cryptocurrencies. On Aug. 5, a “bullish engulfing pattern” emerged on AMD's chart, a classic signal that a new uptrend might be on the horizon. Recognizing the significance of this pattern, our team of trading experts has selected AMD as our Stock of the Day.

Reversal patterns appear on charts when the leadership in a market is changing from bulls to bears or bears to bulls. Sometimes this change takes place over an extended time. This price action may appear on a chart as a ‘rounded' bottom or top pattern.

Sometimes the change takes place after a few periods of volatile trading. This price action could appear as a ‘V' or ‘Inverse V' pattern.

Sometimes the change takes place in one day. This could appear as a bullish engulfing pattern. There is one on the chart of AMD.

Read Also: Goldman Sachs Is Bullish On Nvidia Ahead Of Earnings: Risk-Reward For AI Stock ‘Favorable’

On the morning of August 5, it appeared that the stock’s ongoing downtrend was set to continue. The outlook for the day seemed bleak, with the opening price coming in lower than the previous day’s close, signaling another potential decline.

But by the end of the day, buyers overpowered the sellers and pushed the price higher. It ended up closing at a higher price than the prior day’s opening price. The change in leadership from bears to bulls took place in just one day.

However, the uptrend that started shortly after may now be approaching its end.

The stock has reached the $154.50 level. There is a good chance there is resistance around this price. As you can see on the chart, this level was support in June, and there tends to be resistance at former support levels.

Many of the traders and investors who bought shares at this support now regret doing so. The price is lower and they are underwater.

But now that the price has returned to this level, a number of these remorseful buyers will try to sell at the same price they paid for their shares. This way they can exit the position without losing money.

If there's a large amount of these sell orders it will create resistance at the price that had once been support. This could put a top on AMD. The rally that began with the “bullish engulfing pattern” may be over.

Read Next:

• Nvidia Hedge Fund Ownership Shifts, Citadel Cuts Stake While Renaissance Buys In: Report

Photo: Shutterstock