AMD Stock: Trading Within a Well-Defined Channel
The last time I focused on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock was on January 22, 2018, right before the major market indices went on a wild ride where lower prices prevailed. That sell-off was stoked by a number of factors that spooked investor sentiment. Pundits and analysts came out of the woodwork suggesting that worse was to come, but comically, as they were touting their doomsday scenarios, the markets quickly found their footing and the Nasdaq composite forged a new all-time high.
The reason why I have returned to focus on Advanced Micro Devices stock is because the market sell-off has done little to change the picture that is being painted on the AMD stock chart. It continues to put in the brushstrokes that I believe are necessary in order for AMD stock to stage its next move.
These brushstrokes I speak of—the price action—are highlighted on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
This AMD stock chart highlights a trading range that has been in development since January 2017. This trading range is defined by a trend line depicting resistance at $14.75 and a trend line depicting support at $9.75.
The resolution of this pattern will be determined when AMD stock either breaks above resistance or falls below support, and the stock price is expected to continue in that direction.
I continue to believe that the trading range will resolve itself in a bullish manner by breaking above resistance because a very influential momentum indicator is currently suggesting that the path of least resistance is geared toward higher prices. This influential momentum indicator is the moving average convergence/divergence (MACD) indicator.
MACD is an indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock. A bullish MACD cross implies that bullish momentum is creating a path of least resistance geared toward higher prices, while a bearish MACD cross implies that bearish momentum is creating a path of least resistance geared toward lower prices.
The bullish MACD cross was generated in early January and continues to suggest that AMD stock prices are geared toward higher prices. This indicator has remained in bullish alignment despite the market sell-off, and it is why I continue to believe that the trading range currently in development will be resolved in a bullish manner by breaking above resistance.
A bullish resolution of this trading range would extend a bullish trend that has been in development since February 2016.
This bullish trend is highlighted on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
This Advanced Micro Devices stock chart has been annotated to highlight the wave structure that has been responsible for creating and sustaining its bullish trend.
This wave structure contains impulse waves and consolidation waves that work together in an alternating wave structure, which is what I refer to as “constructive price action.”
The impulse waves are highlighted in green, and they are advancing in nature. Impulse waves define the period in a bullish trend where the stock price makes a sustained move toward higher prices. This is the wave that investors prefer to capture because this is where all the gains are created.
The consolidation waves are highlighted in purple, and they are corrective in nature. Consolidation waves define the period in a bullish trend where a stock price corrects and refrains from advancing. These are the waves that investors prefer to avoid, but this does not mean that they are not important. Consolidation waves create the necessary environment where an impulse wave can develop and flourish.
These waves, which create constructive price action, feed off each other. As long as they continue to alternate, the bullish trend they create remains intact, and therefore, higher AMD stock prices remain in development.
In order to keep the bullish trend intact, Advanced Micro Devices stock needs to break above resistance, which resides at $14.75. This will complete the trading range, which doubles as a consolidation wave, which will then suggest that a new impulse wave is in development.
The sell-off that gripped the market earlier this year did absolutely nothing to negate this wave structure or the signals that have been supporting Advanced Micro Devices stock. As a result, I continue to watch the trading range for a resolution.
I am currently holding a neutral bias on Advanced Micro Devices stock because it is currently confined to a trading range. A resolution of this pattern will determine which direction AMD stock is heading in next, and I will adjust my bias accordingly.