Advanced Micro Devices (AMD) reported Q1 earnings after hours on Monday. There was already report of bearish after hour price action. Indeed, the following Tuesday session (5/2) saw a gap, and continued to slide. Advanced Micro Devices (AMD) Daily Chart(click to enlarge)Price Top:- The daily chart shows that after the reaction to the latest earnings report, price action completed a price top.- This dip has strong volume, and is poised to test the 2017 low around 9.42.- I think there is downside risk as far as 8.00. But I think if it does reach 8.00, it would be over extended to the downside. - If price forms a bullish divergence after price dipped to the 8-9 area, we should consider a bullish push back towards 10, which could extend to 12. What the Reaction Tells Us:- Such a strong negative reaction to a mostly expected earnings report suggests that the surge that cracked 15.00 was overextended.- Investors have been riding AMD with high hopes for the RYZEN chips. - I think the advent of the AR/VR industry gave such hopes even more fuel. - We should not be surprised if price falls back towards this 8-9 area. - But there is no reason to be THAT bearish on AMD.- We should at least wait for a bullish divergence to form between price and the daily RSI before considering a bullish outlook.- Also, we should be cautious and avoid trying to "chase" the gains AMD had in 2016 and early 2017. Instead, limit the bullish outlook to 12 and categorize AMD as a "consolidation market" instead of a "bullish market".- Generally that means wait for stronger evidence of support than in a bullish market before using the "buy-on-a-dip" strategy. Here's am excerpt from a MarketWatch.com article on AMD's Q1 earnings report:AMD reported a first-quarter net loss of $73 million, or 8 cents a share, on sales of $984 million. After adjusting for stock-based compensation and other effects, the company claimed a loss of 4 cents a share. Analysts on average expected AMD to report an adjusted loss of 4 cents a share on sales of $985 million, according to FactSet; AMD had forecast sales of $951 million to $1.02 billion. While AMD mostly met expectations, the Ryzen launch likely had some investors expecting a beat and raise, but AMD said other factors got in the way of a big Ryzen bump. Revenue in the PC group declined sequentially, which AMD said "was primarily due to a decrease in mobile and graphics processor sales largely offset by initial revenue from high performance Ryzen desktop processors." The company's forecast was also on target with Wall Street forecasts, as AMD said the current quarter's sales should rise 17% from the past quarter, plus or minus 3%, which would put the midpoint of the forecast at roughly $1.15 billion in revenue. Analysts on average were expecting a forecast of $1.12 billion, according to FactSet.