Stock Of The Day: Is Advanced Micro Devices About To Break Down?

Advanced Micro Devices, Inc. AMD is trading sideways Friday. But the stock is testing an important support level.

It may be about to break down. This is why our team of technical analysts has named it our Stock of the Day.

If a stock is in a downtrend, it's because there isn't enough demand to absorb all of the supply. Sellers are forced to offer their shares at a discount to get buyers interested. This forces the price lower.

If the downtrend reaches a support level, it will pause or halt. There are enough buy orders to fill all of the sell orders. Traders who wish to sell can do so without having to worry about pushing the price lower.

If the stock does eventually trade and stay below the level that was support, it is called a “breakdown.”

This illustrates an important market dynamic. It shows that the traders and investors who created the support with their buy orders have canceled or finished.

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This puts those who want to sell in an uncomfortable position. They will need to force the price lower to get buyers off of the sidelines and back into the market. This will create a new downtrend.

Advanced Micro is testing or trading at support around $122. There is a good chance this support breaks.

Markets don't go in straight lines. They form a series of peaks and valleys. When a peak forms at a lower price than the prior peak, it is called a “lower high.”

This also illustrates an important market dynamic. It shows that as time passes, sellers are becoming more aggressive. They are willing to enter the market and sell their shares at lower prices.

If the valleys form at the same price level as the previous ones, it shows that the buyers are willing to be patient and wait for the sellers to come to them.

As you can see on the chart, this has been the case with AMD.

This combination of aggressive sellers and patient buyers is bearish. It means there is a good chance the support around $122 breaks. Advanced Micro may be about to enter a new downtrend.

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