Happy Monday, Fellow Traders!
I trust you’ve had a fantastic week of trading, learning, and exploration. The market has been buzzing with countless opportunities across different stocks, from mid-large cap earnings plays to small-cap gems and enticing ETF momentum trades. It’s been an exhilarating week, filled with participation and valuable lessons while exploring the market’s diverse opportunities.
What captured my attention was the intriguing dynamics of certain EV names that had been soaring recently, only to witness a momentary downturn on Friday, potentially paving the way for an enticing breakdown setup in the upcoming week. This exciting development has now become the primary focus of my attention for the week ahead, specifically focusing on NIO. Along with NIO and other EV names like RIVN, I am also interested in a potential long setup forming in AMD. So let’s get right into it!
NIO (NYSE: NIO)
NIO Inc. is a prominent multinational electric vehicle (EV) manufacturer and one of China’s top six manufacturers. The company has gained recognition for its innovative battery technology. The company’s automobile lineup revolves around three main platforms: a sports car, a range of SUVs/crossovers, and a sedan. The EP-9 sports car was the first model and entered production in 2016, while the EC-6, ES6, ES7, and ES8 are SUV crossovers catering to 5 to 7 passengers. Additionally, Nio Inc. offers the ET5 and ET7 sedans accommodating 4 and 5 passengers, respectively.
NIO’s Recent Surge Higher
Along with several other EV manufacturers, shares of NIO have experienced a rapid surge higher in recent months. Over the last three months, the stock has soared nearly 80% higher and almost 54% in the previous month. Thanks to the recent rally, shares of the EV manufacturer are now up over 50% year-to-date.
However, along with several other industry names, NIO experienced a significant shift in momentum on Friday after the stock closed the day at lows, dropping almost 5%. After the recent rally in recent months, Friday’s selloff caught my attention for a potential pullback trade in the upcoming week.
My Trade Plan
NIO has an ATR of just 0.88. However, on Friday, the stock traded a range of 1.48 and closed near the LOD, signaling to me that a clear momentum shift has occurred in the name and many might be left holding the bag from $15+ in the short term.
Therefore, in the upcoming week, I am looking for a pop toward $15.25 – $15.50 to be met with selling and immediate failure, leading to a move back towards $15 and below. Such price action would confirm to me that sellers have taken control.
If I see the stock put in the lower high, I will look to enter the position short, around $15, with a stop placed above the most recent lower high, explained in the above paragraph. So, if the stock pops and fails at $15.30 and trades back to $15, I will get short near $15 and place my stop at or just above $15.30.
My first profit target for the short position would be $14 – $13.80, the first area of support I see on the chart in the short term. I would look to sell close to half of my position there, which would cover my risk and lock in profits. I would also lower my move stop to $15 or trail my stop to 1 ATR above the current price, depending on the price action.
To cover the rest of my position, my lofty price target, with a 1-week time stop placed, is the rising 20-day SMA, near $12.30. It’s a lofty target, but sometimes it pays to have imagination. As mentioned, If the trade materializes, I will cover half into $14ish and most likely move my stop to either $15, thereby locking in profits and taking risk off, or trail my stop to 1 ATR. If the idea triggers and the trade is placed, my timeframe for completion would be about five trading days.
Advanced Micro Devices (NASDAQ: AMD)
Advanced Micro Devices, Inc. (AMD) is a long-standing semiconductor company that has been operating globally since 1969. Based in Santa Clara, California, AMD is a key player in diverse sectors of the global economy. It operates in two segments: Computing and Graphics, and Enterprise, Embedded, and Semi-Custom. AMD’s product range includes microprocessors, chipsets, GPUs, data centers, system-on-a-chip, development services, and technology for gaming consoles, making it highly exposed in the semiconductor industry.
AMD Reported Q2 Earnings Last Week
Advanced Micro Devices (AMD) recently reported quarterly earnings, with earnings per share (EPS) of $0.58, surpassing analysts’ expectations by $0.01. The company’s return on equity was 7.19%, with a net margin of 1.71%. The quarter’s revenue amounted to $5.36 billion, slightly exceeding the consensus estimate of $5.32 billion. However, the revenue was down by 18.2% compared to the same period last year. AMD also provided updated EPS guidance for Q3 2023.
My Trade Plan
After reporting earnings on Tuesday, AMD closed the day in red on Wednesday, down almost 2 ATRs from the open. However, the stock recovered well to close the week in the green, up 2.53%, despite Wednesday’s sharp selloff.
The false breakdown and recovery have now created a potential long setup that interests me.
After testing the consolidation support, near $108, on Wednesday, AMD failed to spend time below it and snapped back towards the resistance of the consolidation. This gets me thinking; a fast move higher comes from a failed move lower.
So, I am looking to get long AMD for a short-term swing trade if the stock can break above $120 and hold above $120 intraday for over an hour, long enough for me to have confidence that resistance has been broken and might become support going forward.
Specifically, I will look for the stock to break over $120 within the next week and make a higher low above that level. Once the stock confirms the breakout, I will get long with a stop placed below $120, as I would not want to see the stock re-enter the range once it breaks above it and holds above it.
I would sell half of my position near $125, just over 1 ATR from the breakout level of $120. For the remainder of the position, I would sell near $130, an important area of resistance and potential failure spot. I would also sell if the move slowed and volume decreased, enforcing a time stop of 5 days.
If the stock fails to hold over $120 once testing the level, I will not get long and move on to other ideas. Remember, don’t get married to an idea. Plan the trade and trade the plan.