AMD Stock: Buy in May and Stay?
Every year, in the month of May, the media throws around the famous old adage, “Sell in May and go away.” It then asks pundits and analysts to comment on this adage, wanting to know if this is the year that this archaic investment strategy will prove its merits.
The markets were tenuous in the first part of the year, plagued with elevated levels of volatility that ultimately led to lower index values. This is the type of market action that can push investors to act on an archaic adage.
The month of May has come and gone. As it turns out, selling in May and going away was a mistake, because the complete opposite is proving true. The markets are currently pushing higher, and a number of indices are beating the bullish drum by forging new all-time highs.
For instance, Advanced Micro Devices, Inc. (NASDAQ:AMD) stock had a stellar month of May, posting a 26.19% return.
The reason why I am singling out Advanced Micro Devices stock in particular is because AMD stock is on the verge of breaking above a significant level of price resistance that will complete a technical price pattern, implying that higher stock prices are on the horizon.
This technical price pattern is highlighted on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the Advanced Micro Devices stock chart is a trading range.
A trading range is a pattern defined by a static level of price support and a static level of price resistance. The trading range outlined on the AMD stock chart is bound by price support at $9.75 and price resistance at $14.75.
These levels of price support and price resistance are important because breaking above resistance would suggest that AMD stock is primed for further gains while breaking below support would imply that AMD stock is primed for further losses.
Price support was valiantly tested in April, and when it failed to break below it, a sustained move toward higher prices quickly followed. In virtually a straight line, Advanced Micro Devices stock appreciated, and resistance outlined by the trading range is currently being challenged.
A break above this level would be a momentous occasion because it would imply that the trading range has finally come to a conclusion and that higher Advanced Micro Devices stock prices are likely to follow.
A bullish development such as this one will coincide with a bullish signal from the influential momentum indicator, which is highlighted on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
This AMD stock chart highlights the influential momentum indicator and the wave structure that has been creating and sustaining a bullish trend in AMD stock.
The wave structure is made up of impulse waves and consolidation waves.
The impulse waves, which are highlighted in green, are advancing in nature. They define the period in a bullish trend when a stock makes a sustained move toward higher prices.
The consolidation waves, which are highlighted in purple, are corrective in nature. They define the period in a bullish trend when a stock corrects and refrains from advancing.
Impulse waves and consolidation waves feed off each other in an alternating wave structure, creating and sustaining a bullish trend.
The trading range currently in development doubles as a consolidation wave. A successful breakout above resistance would imply an advancing impulse wave is likely to follow.
In order to confirm that an impulse wave is in development, the completion of the consolidation wave will need to be accompanied by a bullish signal from the moving average convergence/divergence (MACD) indicator.
MACD is a very influential momentum indicator that distinguishes between bullish and bearish momentum using the crossing of a signal line.
Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices. In order to sustain a move in either direction, the applicable momentum is required.
In November 2015, a bullish MACD cross was generated and it accompanied an impulse wave while it was in development. In October 2017, a bearish MACD cross was generated, and it continues to accompany the consolidation wave that is still in development.
The good news is that if AMD stock can sustain a close above resistance to complete the consolidation wave, a bullish MACD cross will likely be generated because the signal lines that create this signal are currently converging.
Since the markets are pushing higher, this bodes well that such a development will happen in the not-too-distant future.
I am watching the AMD stock chart with great anticipation because I believe Advanced Micro Devices stock is on the verge of embarking on another leg toward higher prices. In order to confirm this notion, I am looking for a sustained close above $14.75 and a bullish MACD signal.