AMD Stock Still Has Its Sights on New Highs

AMD StockAMD Stock: Establishing a Bullish Footing

Semiconductor stocks are all the rage, and the semiconductor index has finally broken above its all-time high that was set in 2000. This has tremendous implications for this sector, and it creates a much-needed tailwind to drive Advanced Micro Devices, Inc. (NASDAQ:AMD) stock higher. On May 1, Advanced Micro Devices stock suffered some steep losses following an earnings report that failed to please investors. This earnings report caused AMD stock to drop to the tune of 24.2%. The good news is that even though this drop was significant and painful, the technical indications on the price chart continue to support a bull market.

If you have not come across my publications in the past, it is worthy to note that my insights and views on a potential investment are generated by analyzing the company’s stock chart. This method of investment analysis is known as technical analysis, and if you ask me, it is the most informative way to analyze an investment because the indications it provides are timely, and it is therefore extremely effective when applied to an investment strategy.

The price chart below focuses on the very important 200-day moving average. The 200-day moving average acts as a dividing line between stocks trading in bull markets versus stocks trading in bear markets. Distinguishing between the two is quite easy; a stock trading above the 200-day moving average is bullish, and one trading below it is bearish.

I have the inclination to believe, based on the indications on the stock chart, that Advanced Micro Devices stock is still within the confines of a raging bull market, as the following AMD stock chart will help illustrate.

amd stock chart

Chart courtesy of StockCharts.com

AMD stock began to trade above this moving average in March 2016, and it hasn’t looked back since. The sell-off that occurred following the disappointing earnings report on May 1 found support right on this moving average, halting any further weakness. Finding a floor at this level of price support suggests that the bull market in this investment is still alive and well, and therefore a bullish bias is still warranted.

The following Advanced Micro Devices stock chart illustrates that this bullish bias is being reinforced by constructive price action.

Advanced Micro Devices stock chart

Chart courtesy of StockCharts.com

The price chart above illustrates that the advance that began early last year has been characterized by constructive price action. Constructive price action consists of a two-wave structure that creates the essential building blocks to create a sustainable trend.

The initial wave, an impulse wave, is highlighted in green. The wave that follows is a consolidation wave, and it is highlighted in purple on the stock chart above. These two waves in an alternating cycle create constructive price action.

The impulse wave functions to propel the share price in an orderly and linear fashion. When the impulse wave is completed, a consolidation wave develops. The consolidation wave functions to alleviate any overbought conditions that were created in the preceding impulse wave in order to create the necessary environment where a new impulse wave can develop.

At this current juncture, a consolidation wave is developing above the 200-day moving average, reinforcing the notion that this wave structure is still developing within the context of a bull market. This wave that is currently in development is coinciding with a bearish moving average convergence/divergence (MACD) indicator.

MACD is trend-following indicator that is used to distinguish between bullish and bearish momentum. These indications have been instrumental in correctly suggesting which wave is in development.

In March, and November 2016, a bullish MACD cross correctly suggested that an impulse wave was set to develop. In September 2016, and April 2017, a bearish MACD cross correctly suggested that a consolidation wave was set to develop.

The signal lines that generated the MACD cross are currently in bearish alignment, but they are beginning to converge. I expect a bullish cross to coincide with the completion of the current consolidation wave that is in development. These two indications will reinforce the notion that a new impulse wave is set to develop, in which new highs are expected to follow.

I am expecting this impulse wave to develop, and the following Advanced Micro Devices stock chart illustrates the method I used to created a potential price objective.

amd price chart

Chart courtesy of StockCharts.com

I have come up with a potential price objective for AMD stock using a parabolic extension. Under this premise, I am assuming that the length of the initial impulse wave will match the next leg that is set to follow. The price chart above illustrates that the parabolic extension is currently projecting a price objective of $24.50. That represents a possible double from current prices. Given the bullish backdrop in the semiconductor sector and the bullish indications on the AMD price chart, I firmly believe that this price target is obtainable.

Last Words on AMD Stock

I am bullish on Advanced Micro Devices stock. I am assuming this view using a multitude of technical indicators that are serving to suggest that the bull market in AMD stock has further to run.