Is it time to sell AMD stock as short interest hits 9 month high? Or, will a short squeeze drive the stock higher?
Shares of Sunnyvale, California-based Advanced Micro Devices, Inc. (NASDAQ:AMD) have been on a dream run for well over a year now. The massive rise in the stock price has not gone unnoticed, as short sellers have been piling into the stock over the last 2 months. In a recent report, an Amigobulls co-author had highlighted how the short interest in AMD stock has risen sharply and could, in fact, have moved higher since the end of Jan. Should you sell AMD stock given the rising short interest? Well, we don't think so. Here's why.
Short Interest Is The Fuel, AMD Stock Is A Rocket.
Short Interest can fuel a rally, and a quote on USA today summarizes this perfectly. Quoting from the source, "The possibility of a short squeeze is one reason some analysts look at a high amount of short interest as a bullish indicator. Short Interest is the fuel, performance is the fuse, says ShortSqueeze.com." Well, it makes absolute sense, as a rally from here could send AMD shorts running for cover. And given that the number of shorted AMD shares have hit a 9 month high, we could have a 'lot' of fuel for a nice rally! But what event could trigger such a short-covering rally? What could be the so-called 'fuse' which could send AMD stock higher?
AMD Shorts Wouldn't Want To See This.
The AMD chart looks promising, to say the least. Patrick Brik, writing for Profitconfidential.com, puts across a very promising chart saying "AMD Stock Is Going Parabolic." Based on the parabolic extension chart highlighted in the post, AMD stock looks set to continue its current meteoric rise, all the way to $24.5. That's a near 90% further upside from the last closing price on Feb 16.
If this plays out as expected, AMD shorts will be running for cover soon, without a doubt.
The weekly chart also throws up another encouraging sign for AMD bulls. A trendline, on the weekly chart, drawn from the early 2016 lows has offered a support to AMD stock price on 3 occasions in the past. Looking at the weekly chart, a pullback up to the $11 price levels could be on the cards. However, that shouldn't get AMD investors worried. Why? Because the stock has bounced off strongly from this trendline on each of the three occasions over the past year.
AMD Looks Good For The Long Term.
In our recent coverage on AMD, we have highlighted the huge opportunity which lies ahead of AMD. With a total addressable market of over $53 Billion, the ball is firmly in AMD's court to execute well in order to realize this opportunity. With current CEO Dr. Lisa Su at the helm, AMD seems to be on the right track to realize this potential. Quoting Su, courtesy a recent Barron's post, "We were a company with great engineers, great talent, but we had a foot in one thing, a foot in another, and a whole lot of things that were more than we could do and do well". Well, that was the AMD of Old. The company has today morphed into one with a clear reporting structure, which was required to bring in discipline and to focus on the biggest and most promising opportunities. Ruth Cotter, head of human resources and investor relations at AMD, puts it well, saying "I think the difference now is we are a real company. Su knows how to hold individual executives responsible, in contrast to a corporate style that for years let engineers run around with no accountability." This puts AMD in a good position to achieve solid growth over a multi-year time-frame.
Putting It All Together
Short interest in AMD stock has hit a 9 month high. With the short sellers piling into the stock, the chances of a short squeeze look extremely likely. The weekly charts indicate a continuation of the current uptrend in AMD stock price, which should send the shorts running for cover, sooner rather than later. Long-term investors looking to gain entry should use the current dip in AMD's stock price to get into the stock at lower prices. The long-term growth story looks promising, even though we might be in for a correction in the immediate near-term.
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