Not sure if you’ve noticed, but Advanced Micro Devices – better known to traders simply as AMD – has been on a tear…

One of Wall Street’s favorite semiconductor stocks is up another ~35% in the past 10 trading sessions alone in a move that has every sign of a classic momentum runner.

As with so many things in this market, the first question that comes to mind is “has it gone too high up”?

And if not, where do we head from here?

AMD’s Earnings are Hot

AMD continuously shows that it’s very good at two things: making chips and beating analyst estimates. 

After hours of July 27th, 2021, the company reported its 4th straight quarter of record revenue and a second increase to its guidance:

• EPS of $0.63 vs consensus of $0.54 
• Revenue of $3.85B vs consensus of $3.62B 
• Q3 Revenue Guidance of $4.1B vs consensus of $3.82B

The analysts appreciated the growth, flooding the stock with upgrades and price target hikes, and so did the investing public:

Shares of AMD have gained over 10% on the day following the announcement.

They have since pushed further and through year-long resistance in the $95-$100 area, currently printing in the all-time high territory. 

From a momentum trader’s standpoint, though, it’s not what they did, rather it’s how they did it that matters.

Here’s the chart of the stock’s action since AMD’s last leg up in mid-2020:

Are you noticing something different this time around?

The strength has been unparalleled, the volume has been outsized and the shares truly haven’t looked back – a textbook example of a momentum trade.

Couple that with a 7.2% short interest: not very high, but not shabby either – it will surely add some demand for the shares. 

A Blowout May Be In the Works

If you look at a bigger picture chart, you’ll see that the stock has been nothing but up over the past few years:

And the current action may be the start of what is generally known as a blowout setup: a quickly accelerating parabolic push past long-time resistance that can take shares to irrational highs. 

These tend to occur in really strong stocks following long periods legs higher and consolidations that don’t give back – exactly the case of AMD.

A good example of such a move, even if more short-term, is TSLA, as it made its last leg higher from the $400 into the $900 area.

There are three defining characteristics of these: aggressive buying with no dips, solid volume, some amount of short interest to supplement the demand – AMD currently sports all three.

How To Trade It

Assuming the market doesn’t do a hard crash and take everything with it, I think there are 2 ways AMD can play out: 

• The stock really extends over the next few weeks and goes parabolic, possibly into the $140-$150 range, doing what I’ve just described above, and then gives back into the $100-$120 area. 
• The stock does another round of consolidating higher in the $100-$120 range, much like it’s done in the past, until a new catalyst makes it go parabolic or breaks it lower, ending the uptrend. 

I’ll be watching it closely over the next few days, but based on what I’m seeing right now, I think the parabolic scenario is more likely. 

To consider a long trade, I don’t want to see it look back, and would be looking at dips only if AMD holds $110 over the next few days. If it does, though, my $140-$150 squeeze-out target remains very much in play. 

What Else to Watch?

It often takes just one stock to put the entire sector on fire and if AMD heads higher – it might very well do just that.  

The good news for us is that semiconductors have historically been a hot place to trade!

There are 2 more peers with promising charts that can see more upside, shall AMD do its thing. 

Analog Devices – ADI

• Market Cap: 61.50B
• Short Interest: 11.33%

The company is scheduled to report earnings in a little over 2 weeks, on August 18th, before the market opens. 

Given AMD’s action over the past few days, I really wouldn’t be surprised to see a run-up into the report. 

Nvidia – NVDA

• Market Cap: 496B
• Short Interest: 1.21%

Who even talks about semiconductors, without mentioning NVDA? Granted, it’s the biggest one, but it’s also the strongest + the chart still shows good potential. 

NVDA doesn’t have a set earnings date yet but is also expected to report in the week of 16th-20th of August. 

Much like ADI, I think we can see continuous demand for shares over the next few weeks, in the event AMD maintains its strength.