Advanced Micro Devices, Inc.: A Must-See for AMD Stock Bulls & Bears
AMD Stock: Time for a Pause?
The semiconductor sector has been the top-performing business sector of 2016, up 25.3% year-to date, and Advanced Micro Devices, Inc. (NASDAQ:AMD) stock is up 141%, making it a rock star as it has become one of the leaders in this space.
This was not always the case, as AMD stock was notorious for disappointing investors and the long-term trend provides evidence with regards to this.
I cannot say exactly what caused this out-performance, but the price chart does point to at least one catalyst that helped propel these gains. A simple trend line is all anyone needed to spot that something big had changed the dynamic of trade in AMD stock.
The following Advanced Micro Devices stock chart illustrates the simple trend line I am referring to.
Chart courtesy of StockCharts.com
The downtrend line, highlighted in blue, is created by connecting the peaks. A downtrend is defined by lower lows, confirmed by lower highs. It can easily be identified as the price moves from the upper left to the lower right. This is a clear example of bearish price action. Shares will continue to trade with a bearish bias for as long as the trend remains intact, and this trend has ruled trade in AMD stock for a decade.
A glorious moment occurred in April 2016 that changed this bearish landscape forever: Advanced Micro Devices stock finally broke above the downtrend line. The pattern of lower highs and lower lows had ceased and, in theory, this action suggests at minimum an end to the bear market.
After the break of the downtrend, AMD stock proceeded to run for the next four months and totaled six months of gains before AMD stock finally registered a month void of positive gains. This was an impressive run, and it registered as the longest run of month-over-month gains in over a decade.
This rally was fueled by investor optimism surrounding the sector, as well as by short-covering. Breaking a trend that was intact for a decade is not an easy feat, and investors responded appropriately.
The break of the downtrend line was not the only bullish catalyst that helped in sending AMD stock soaring. There was another technical signal that turned bullish prior to the breakout, and it is illustrated on the Advanced Micro Devices stock chart below.
Chart courtesy of StockCharts.com
In December 2016, AMD stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). This signal is used to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this momentum indicator, and it is no coincidence that the downtrend in AMD stock was finally broken, with this signal engaged in a bullish position.
The following Advanced Micro stock chart illustrates the trend that has supported the surge in price that broke the downtrend line.
Chart courtesy of StockCharts.com
The trend on the chart above defines the surge in price that broke the downtrend, but also the bull market run of 2016. This trend line is the complete opposite of a downtrend line and is created by connecting the troughs on the price chart.
After AMD stock completed its run of six months of consecutive gains, the importance of this trend has increased dramatically. If AMD stock fails to make a new high on this next leg up, this trend line might be in jeopardy of breaking. I would use a break below this line to define my risk, and I would effectively exit when this trend line breaks.
The Bottom Line on Advanced Micro Devices Stock
I am bullish on AMD stock, but the recent run may have run its course. I am on the lookout to see if the uptrend line will hold, and I will use any break below it to assume that the trend higher has at minimum paused. If this is the case, I would exit the trade, awaiting the next setup pattern that could give further insights into the next move for Advanced Micro Devices stock.
