The Breakout in AMD Stock Needs to Be Confirmed

amd stock analysis
iStock.com/Andrey Tolkachev

AMD Stock: Waiting on a Confirming Signal

The prospects of a trade war are really starting to weigh on the markets. This tit-for-tat affair seems to be taking a turn for the worse, and the direction it is heading in is currently responsible for unnerving the stock market.

There is no real way to sugarcoat this development because I find it almost impossible to support protectionist policies. The only solace for investors at the moment is that the markets are still pitched above significant levels of price support. As long as the indexes are above price support, I can only assume that a bull market is still in development.

Depending on where we look, not everything out there is bad. For instance, I am focusing on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock because it has generated a number of indications suggesting that AMD stock is ready to sustain a move toward higher prices.

These indications are highlighted on the following Advanced Micro Devices stock chart.

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Chart courtesy of StockCharts.com

The technical price pattern highlighted on the Advanced Micro Devices stock chart is a trading range.

This trading range is defined by a static level of price support at $9.75 and a static level of price resistance at $14.75. Two horizontal trend lines were annotated at these levels in order to capture this pattern.

These trend lines, which represent price support and price resistance, are important because the next sustained move in Advanced Micro Devices stock will be determined when AMD stock can either break above resistance or fall below support.

In April of this year, price support was vigorously tested. When the stock price failed to break lower, AMD stock turned and made a move toward higher stock prices. The move toward higher prices was quite astonishing, and in one sustained move toward higher prices, Advanced Micro Devices stock managed to break above price resistance.

This break above resistance, which occurred on June 6, 2018, completed the trading range, implying that higher prices are likely to follow.

AMD stock is currently testing the level of price resistance from above.  Testing a previous leave of resistance from above is called a backtest. Backtests serve to reaffirm that the break above resistance was legitimate, while simultaneously establishing this price point as a new level of price support.

The breakout and the backtest are supporting the notion that Advanced Micro Devices stock is likely to appreciate, but in order to confirm this notion, one more signal is required.

This indicator that produces the signal required to confirm that a move toward higher stock prices is now in development is highlighted on the following Advanced Micro Devices stock chart.

Chart courtesy of StockCharts.com

This AMD stock chart highlights an influential momentum indicator and the wave structure that it has been supporting.

This wave structure consists of impulse waves and consolidation waves.

The waves highlighted in green are impulse waves. These waves are advancing in nature and they capture the period in a bullish trend when a stock sustains move toward higher prices. The waves highlighted in purple are consolidation waves. These waves are corrective in nature and they capture the period in a bullish trend when a stock corrects and refrains from staging an advance.

Impulse waves and consolidation waves are the building blocks responsible for creating and sustaining a bullish trend.

The trading range currently in development doubles as a consolidation wave, and its completion implies that an advancing impulse wave is now in development.

In order to confirm that an impulse wave is in development, the completed consolidation wave needs to be accompanied by a bullish moving average convergence/divergence (MACD) signal.

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.

For example, the impulse wave that developed in the fall of 2015—which was responsible for a sustained move toward higher prices that tacked on 804.07% in gains—was accompanied by a bullish MACD signal. The consolidation wave that followed was also accompanied by a bearish MACD signal.

These examples are why I need a bullish MACD signal in order to confirm that a sustained move toward higher prices, via an impulse wave, is in development.

The good news is that the signal lines that create a MACD signal are currently converging, and barring a significant sell-off, a bullish signal is likely to be generated in the weeks ahead.

Analyst Take

There are indications suggesting that Advanced Micro Devices stock is primed for a sustained move toward higher prices. In order to confirm this suggestion, I require a bullish MACD signal. Barring a sell-off in AMD stock, one will likely be generated in the weeks ahead.