Trading Nation

AMD's charts are pointing to a big comeback despite recent setback, trader says

VIDEO3:5903:59
Trader says AMD about to make a big turnaround

A big comeback for Advanced Micro Devices is in the cards.

That's according to Ascent Wealth Partners' Todd Gordon after the chipmaker took a dive. Shares came under pressure earlier this week after the company issued bleak revenue guidance in its earnings report on Tuesday. Since then, AMD has fallen 4% and is on pace for its worst week since August.

But that's not stopping Gordon from adding to his position in AMD and predicting a turnaround.

"I think we're seeing a little bit of profit-taking move here coupled with the concern that we're seeing going forward with guidance, with other things going on with the coronavirus" he said Thursday on CNBC's "Trading Nation." "So I want to view this as an opportunity to add to my stock position and put on a new options trade."

There are a number of technical indicators that Gordon sees that signal a rally for AMD. First, the stock recently broke through the $47.50 to $48 level, which were highs for the stock during 2000.

That leads Gordon to believe that the same levels are now acting as support for the stock and helping it set up for a rebound.

On a shorter-term, daily chart of AMD, Gordon points to two other things that he says builds the bull case for the chipmaker. First, the depth of the pullback in AMD this week is reminiscent of a similar pullback in November, leading Gordon to believe that just as back then, the stock is set to bounce after this dip.

Finally, he said, AMD's 50-day moving average is "offering support" at around $44.75, meaning a pullback down to that level would set the chipmaker up for a jump as well.

To play AMD for a breakout, Gordon wants to buy the March monthly 47-strike call and sell the March monthly 50-strike call. The trade would cost him $1.22, meaning he would be risking a maximum of $122 on the trade.

That $122 loss scenario would play out if AMD were to close below $47 on March 20 expiration. But if AMD were to close above $50 on that day, then Gordon could make $177 on the trade.

AMD is still up 3 percent this year even with this week's drop.