If a stock is stuck in rut and not really going anywhere it can seem challenging to make any money off of it.
But Real Money’s Timothy Collins says there is a way, if you do your homework.
“I do like Advanced Micro Devices as a range bound play here,” Collins wrote recently on Real Money. That’s because “The board [has] approved a new $8 billion repurchase agreement. If the market moves higher from here, I doubt they will get aggressive with a buy back immediately. However, if we reverse lower, I wouldn’t be surprised to see AMD scoop up some of its own shares”
The challenge is to figure out where the support and resistance bands are for the stock.
A resistance band is the upper level that you expect out of a stock’s price. You develop this based on the asset’s price history over time. For example, say that over the past three months, a given stock has approached $20 per share several times without exceeding that price. You might decide that this is its resistance band. Until prevailing trading patterns change you will expect the stock to continue trading as high as $20, but not higher.
Similarly with support bands, you look at the asset’s price history over time. For example, say a given stock has approached $10 per share several times over the past three months without dipping below that price. You might decide that this is its support level. Until prevailing trading patterns change, you will expect the stock to continue trading down as low as $10 but not lower.
With those values in hand, you can wait for the stock to approach its support level and buy in. Then, wait for the stock to approach its resistance band and sell.
In the case of AMD, Collins says he’s seeing resistance between $127.50 and $132.50. He’s seeing support between $105 and $110. “I see $105 as the level we would whoosh to if $110 fails, but I anticipate buyers or the company would step in around that level,” Collins wrote.
