AMD Stock: Patience Is Warranted, and Will Likely Be Rewarded
We are in the middle of that wonderful month of May, when the weather begins to turn for the better and summer is just around the corner.
May is also the month when some investors believe it is wise to sell, because, as the saying goes, “sell in May and go away.” This is a funny saying, and I can attest that it has not always been to the benefit of investors. The last few years are a testament to this notion.
Whether the saying will prove to be right this year remains to be seen. But, as long as the market continues to hold significant levels of price support, and the volatility index remains subdued, I believe that the market will be poised to make an advance this summer.
One name I am watching in particular is Advanced Micro Devices, Inc. (NASDAQ:AMD).
The reason I have been watching AMD stock is that it has been confined within a technical price pattern since January of last year. A resolution of this pattern would dictate which direction the stock is heading in next.
This technical price pattern is highlighted on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that the technical price pattern I have been watching is in a trading range.
A trading range is a pattern that is defined by a static level of price support and a static level of price resistance. The trading range depicted on the above stock chart has been bound by price support, which resides at $9.75, and price resistance, which resides at $14.75.
Breaking above price resistance would imply that AMD stock is likely to stage a move toward higher prices, while breaking below support would imply that the stock is likely to stage a move toward lower prices. It’s a fairly simple concept to grasp.
The trading range on the Advanced Micro Devices stock chart has been in development since January 2017, making it a fairly large pattern.
This is pertinent information because the size and scope of the pattern is directly related to the reaction that follows. To clarify, the longer this pattern is in development, the larger the reaction that follows once it is resolved. This is why I continue to watch it.
Support outlined in the trading range was recently successfully tested, and common sense is suggesting that resistance is now likely going to be tested. I am on the lookout for a potential break above resistance.
A break above resistance would coincide with a bullish signal from a very influential momentum indicator, which is highlighted on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates a wave structure and an influential momentum indicator that has been responsible for creating and sustaining a bullish trend in AMD stock.
The wave structure consists of impulse waves and consolidation waves.
Impulse waves are advancing in nature, and they define the period in a bullish trend when a stock makes a sustained move toward higher prices.
Consolidation waves are corrective in nature, and they define the period in a bullish trend when a stock corrects and refrains from advancing.
Impulse waves and consolidation waves work together in order to create and sustain a bullish trend.
The trading range that is currently in development doubles as a consolidation wave. A successful break above resistance would imply that higher prices are likely to follow via an impulse wave. A bullish move such as this one would be supported by 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 likely to appreciate, while bearish momentum implies that a stock is likely to depreciate.
A stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it. This is why the MACD indicator has done an exceptional job at confirming which wave has been in development.
A bullish MACD cross has correctly implied that an impulse wave was in development, while a bearish MACD cross has correctly suggested that a consolidation wave is currently in development.
I am watching for a break above resistance and a bullish MACD cross because I believe that both of these signals would confirm the notion that much higher Advanced Micro Devices stock prices are in development.
I am watching Advance Micro Devices stock because I believe that the next sustained move toward higher AMD stock prices will be preceded by a bullish MACD signal and a break above resistance, which currently resides at $14.75.