AMD Stock Is Testing a Critical Level of Price Support

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AMD Stock: A Potential Trend Reversal?

The stock market is experiencing turbulence as investors are trying to come to grips with a barrage of market-moving news events ranging from higher interest rates to a potential trade war. It’s fair to say that emotions are running high, and it is the cause of these wild swings the markets have been experiencing.

The technology stocks have taken it on the chin as of late, and a lot of them are currently testing critical levels of price support. Any time a handful of stocks within a sector are testing critical levels of price support, this price action can be quite worrisome, especially if they, as a group, fall below price support. I’m focusing on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock because AMD stock is currently one of those stocks testing a very important and critical level of price support.

The following Advanced Micro Devices stock chart illustrates the significant and critical level of price resistance that is currently being tested.

Chart courtesy of StockCharts.com

This AMD stock chart illustrates that a channel has been in development since January 2017. A channel is a technical price pattern that is characterized by a static level of price resistance and a static level of price support. Resistance currently resides at $14.75 and support currently at $9.75. Two parallel trend lines were used to define these levels.

It is assumed that the development of the channel will continue until the pattern is resolved, which will be determined by AMD stock’s ability to either break above resistance or fall below support. When one of those events occurs, AMD stock is expected to continue moving in that direction.

Currently, support outlined by this channel is being tested, and the risk of Advanced Micro Devices stock breaking below this level of price support is high and rising.

The following Advanced Micro Devices stock chart illustrates another metric reinforcing the notion that this is indeed an important level of price support currently being tested.

Chart courtesy of StockCharts.com

The AMD stock chart highlights the 200-month moving average, which is not unlike the 200-day moving average, which is a very influential price metric that separates stock trading in bull markets and stocks trading in bear markets. A stock trading above it is bullish, while one trading below it is bearish.

200 trading days is roughly one year, while 200 months translates into a little over 16 years, which compounds the significance of the level of price support outlined by this metric. AMD stock must maintain its foothold above this level of price support or it will suggest that lower prices are on the horizon.

Breaking below price support will also negate the bullish implication suggested by the constructive price action illustrated on the following Advanced Micro Devices stock chart.

Chart courtesy of StockCharts.com

This Advanced Micro Devices stock chart illustrates the constructive price action that has been responsible for creating and sustaining its bullish trend.

Constructive price action consists of impulse waves and consolidation waves.

The impulse waves are highlighted in green, and they are advancing in nature. They define the period in a bullish trend where a stock makes a sustained move toward higher prices.

The consolidation waves are highlighted in purple, and they are corrective in nature. They define the period in a bullish trend where a stock corrects and refrains from advancing. Corrective price action is a necessary piece of every bullish trend because it sets the stage for the development of the next impulse wave.

The channel currently in development doubles as a consolidation wave, and in order to keep the bullish trend that has been in development intact, Advanced Micro Devices stock needs to maintain support and not fall below it. Breaking below support would imply that the bullish trend has run its course and a trend toward lower AMD stock prices has begun.

Analyst Take

Advanced Micro Devices stock is testing a critical level of price support, and in order to maintain the bullish trend that has been in development since February 2016, AMD stock must maintain a foothold above this level of price support. Breaking below it would negate the bullish trend that preceded it, and suggest that a trend toward lower prices has begun.