AMD's Fundamentals Should Be Strong, But Will the Market Buy It?

On Thursday, chip-maker Advanced Micro Devices (AMD) is set to step into the earnings spotlight. AMD's microprocessors and chip sets are used in everything from computers to cars to consumer electronics. Analysts' expectations call for a loss of 15 cents per share, compared a loss of 69 cents per share a year ago. Historically, AMD has shown promise in the earnings confessional, only to drop in the subsequent quarter.Elsewhere in the semiconductor sector, AMD's top rival, Intel (INTC) released an impressive fourth-quarter earnings report last Thursday, suggesting that we could see similar performance from AMD. Unfortunately for Intel, the good earnings news led to a sell-off in the shares.

Markets do sometimes behave counter-intuitively, but a look back at a stock's technical performance can provide some idea of what to expect in the future.

On that front, AMD finds itself in a bit of a technical bind, facing double-barreled resistance comprised of the $9 region and the equity's 50-month moving average. The last time AMD finished a month atop the $9 region was 2007, and that was more recent than its last close atop the 50-month trendline (late 2006, if you're curious). Turning to a weekly look at the stock, we see that there is some support in place from AMD's 10-week trendline. This moving average is wending its way higher through the $8 region, and that could provide a bit of a cushion should there be a sell-off after the earnings report. Of course, with the overhead resistance in place, even positive earnings could be met with a technical thud. One final technical aspect to consider: The stock is trading near the top of the range it has occupied during the past 52 weeks. This is important because we could see the stock retreat from this high (in the $10 region) should it rally at all.

Fundamentally, AMD should see a bit of improvement thanks to its November settlement agreement with Intel. In exchange for dropping several antitrust and patent lawsuits, AMD banked $1.25 billion from its rival, and the two firms renewed a five-year patent cross-licensing agreement. In addition, AMD has scored some notebook design deals that it hasn't had the luxury of logging in the past. AMD also produces hard drives, and strengthening demand for computers should help eliminate some of AMD's excess inventory.

Given the sell-off that followed Intel's positive report, it's difficult to predict how the market will react to AMD's numbers. It is possible that AMD would need to report record earnings in order to see its stock make a positive move.
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