AMD Stock: Key Indicators Are Supporting the Notion of Higher Prices
After a stellar 2016, which witnessed Advanced Micro Devices, Inc. (NASDAQ:AMD) stock appreciate to the tune of 295.12%, the performance this year has been lackluster. Year-to-date, AMD stock is up 11.73%, which on its own is impressive, but it leaves a lot to be desired when it is compared to the performance number that was registered last year.
I still have the inclination to believe that Advanced Micro Devices stock still has something left in the gas tank, and much higher prices are still on the horizon. I originally expressed my views in a report that was published on February 10, 2017, titled “AMD Stock Chart Implies MUCH Higher Prices.” In it, I wrote that there were indications on the company’s stock chart that suggested $24.50 was a viable price objective. The price objective was based on a technical term known as a “parabolic extension.” Please click on the link above if you want to learn more about how this objective was obtained.
The reason why I believe that this price objective is still in play is because the stock is trading above a key metric, and the price action remains constructive.
The following Advanced Micro Devices stock chart illustrates the key metric that AMD stock refuses to trade below.
Chart courtesy of StockCharts.com
This price chart has been created in order to bring attention to a very important metric known as the 200-day moving average. This metric is created by averaging the stock’s closing price over the last 200 days and plotting that value on the stock chart. The 200-day moving average acts as a dividing line that separates a healthy stock trading in a bull market from an unhealthy stock trading in a bear market.
Using the 200-day moving average as a tool is quite easy, because distinguishing between these two polar opposites depends on which side of the 200-day moving average the stock is trading. A stock trading above it is bullish, and one trading below it is bearish. It’s just that simple.
In March 2016, Advanced Micro Devices stock broke above the 200-day moving average, and it has been trading above this metric ever since. There have been a number of sell-offs that have plagued this investment, and each and every time the 200-day moving average was tested from above, buyers were eager to step in and support this metric.
Advanced Micro Devices stock is currently trading above the 200-day moving average, and therefore, I can only assume that a bull market is still in development, where higher stock prices will prevail.
The price action that is occurring above the 200-day moving average is constructive, which is supportive of higher stock prices.
This constructive price action is illustrated on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
This AMD stock chart has been highlighted in order to define the waves that constitute constructive price action. Since February 2016, when this beautiful bull market began to develop, the price action has been characterized by an alternating wave structure.
This alternating wave structure creates constructive price action, and it consists of impulse waves, which are highlighted in green, and consolidation waves, which are highlighted in purple.
Impulse waves define the period in a bull market where the stock price stages an advance. This wave is characterized by a sharp and swift move to the upside.
Consolidation waves define the period in a bull market where the gains created during the impulse wave are digested. This price action serves to alleviate any overbought conditions that were created during the impulse wave, and more importantly, the consolidation wave sets up the next impulse wave.
These waves feed off each other, and in alternating wave structure they create a trend that is orderly and sustainable. The price action on the AMD stock chart is a textbook example of these waves in action.
The completion of the consolidation wave that is currently in development would suggest that a new impulse wave is set to follow, and in order to accomplish this feat, the stock price needs to exit the consolidation wave in an upward direction by breaking above $15.50.
I continue to view Advanced Micro Devices stock in a bullish light because the indications on the company’s stock chart suggest that such a view is warranted. As long as AMD stock is trading above its 200-day moving average and the price action remains constructive, then higher stock prices are likely. I am looking for a break above $15.50, which would suggest that the $24.50 price objective is in play.