As a follow-up to the trade setup & entry on AMD (Advanced Micro Devices) posted earlier today, I just wanted to state that the trendline break & recent divergent high on the 60-minute time frame were not the only considerations that went into adding the stock as an official trade idea today (and unofficial trade in the trading room yesterday).
I will often use the bullish & bearish crossovers on the PPO or MACD as confirming signals for an entry on a long or short trade setup. Essentially, I prefer to see what I refer to as “clean” crossovers, meaning that the signal line on the PPO has crossed over after a period of fairly clean separation between the two. I try to avoid extrapolating any useful information from the PPO crossover when a stock has been trading in an erratic, choppy range as that leads to increased whipsaw (false) buy & sell signals.
Other than simply looking at the recent action on the PPO line & the signal line (PPO 9-ema), one can glance at the PPO histogram, which provides a quick & easy visual representation of the differential between those two lines, i.e.- the higher (or lower) the histogram bars, the greater the distance between the PPO line & the signal line. As such, I like to see big green & red “hills” & then wait for the zero line crossover (which is also indicated by the histogram bars going from green to red & vice versa). That smaller red & green hills between the vertical lines that I added to the point of the “clean” crossovers are examples of when I don’t put much of a weighting on the crossovers.
As the vertical lines on the chart show, those previous “clean” bearish crossovers on the PPO, such as the one occurring today, were followed by corrections ranging from 16% – 39% & this time around, I expect a drop of at least 29% off the recent high, with today’s bearish crossover on the PPO as a confirming sell signal to the recent 60-minute trendline break & divergent high.
With that being said, even the most objective entries with tons of confirming evidence to support a trade by no means guarantees success, especially when trying to catch a top on a stock in an extremely powerful uptrend line AMD. As such, a well-placed stop will minimize losses if this, or any trade, doesn’t pan out & allow to stay in the game & catch the next one.
On a final note, I had mentioned a break below 30.15 (a couple of cents below the 30.17 minor support level) as providing another, slightly higher-probability, objective short entry or add-on to a partial position shorted here. I should also add that AMD may very well want to make one more thrust up to backtest the 60-minute trendline from below before finally rolling over (assuming that it does soon). As such, a backtest of the trendline, or even better, an impulsive rejection following a backtest of the TL, would also offer an objective short entry or add-on on Advanced Micro.