Should one buy strength or weakness?

Let us look at a few price action cases to understand this point.

I have learned one lesson the hard way – never argue with the market. One should always listen to the market and the price is the only way the market communicates and hence reading price action is key to making informed decisions.

AMD is trading at 10 month low. Is the stock a buy at the current market price?

AMD is at the support price of $73 and it’s tempting. Over the last 10 months, the stock has always bounced from this level.

If we just look at this fact, AMD is a no brainer buy but then you have to ask this question, if the price is so attractive why the stock is not bouncing from this level 🙁

If we look at the weekly chart, AMD has already broken a critical support level of 50 week moving average which it always held for 2.5 years. Why? 

Science of stock price action says that when any asset breaks 50 week moving average, it can decline to 100-week ma. Unfortunately, 100-week ma stands at $60. It also coincides with new high support of $59. See the weekly chart below.

What am I suggesting now – AMD has been showing weakness on the chart by not bouncing from 73 levels and if it cracks, it can tumble to $60. If I have AMD, I will sell on any breakdown below 72. 

The entire bullish thesis around AMD over the last few years has been it taking market share from Intel and getting additional revenue from cryptocurrency mining. Now both factors might be slipping as Intel is staging a turnaround and Bitcoin tumbling below $40K. Don’t get me wrong, I still love AMD and its long-term prospects but as a price-action reader, one should be honest about what one sees on the screen. I don’t move markets, I follow markets.  AMD if it breaks down $73, can slip to $60. 

Here’s another stock: TJX trading at an all-time high

Let the chart speak for itself

As the market turned bullish on retail consumption plays, TJX, the company that operates three stores TJ Maxx, Marshalls, and Home Store, made a bullish move with a gap up and rallied from $60 to $70 by early Jan 2021 and then stayed below it till end April before breaking past $70. It has been more than 3 weeks that the stock has sustained $70, and with the company coming out with good earnings numbers, it needs to be seen whether the stock can sustain $70 today. 

Because if it does, then one can expect a 20% upside over the next few months.

Now the market condition has tuned a little choppy and hence it needs to be seen what happens today.

• Will AMD survive $73? [Buying weakness]
• Will TJX hold $70? [Buying Strength]

I wish I knew the answer. Personally, I am more comfortable buying strength. Having said that, you never know 🙂

Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers