AMD Stock: This Tech Stock Is About to Go Vertical
AMD Stock: The Bear Hibernates
Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has been a hot name to grace the message boards, and for good reason. This name is up 141% year-to-date. For many, this performance has come as surprise. What if I told you that there were reasons to believe that a trend reversal was brewing, would I have your attention?
The truth is, if your style of analyzing stocks is to use a price and volume, then the answer is yes, there were definitely signals that foresaw the possibility of a trend reversal.
The following charts illustrate the downtrend that pressured AMD shares lower.
Chart Courtesy of www.stockCharts.com
A downtrend had dominated AMD stock since January 2006. The downtrend line, highlighted in blue, is created connecting the peaks, and is defined by lower highs, confirmed by lower lows. It can easily be identified as price moves from the upper left to the lower right. This is a clear example of bearish price action.
The excitement for AMD stock began when shares were finally able to break above of the downtrend line that stood for a decade. In April, 2016, the pattern of lower highs and lower lows had ceased; the bear had finally entered hibernation.
The following chart illustrates how a moving average signal was already flashing a bullish signal prior to the breakout.
Chart Courtesy of www.stockCharts.com
Prior to the break of the downtrend, the moving average signal known as a “golden cross” was already implying a bullish tailwind behind AMD stock.
In December 2016 AMD stock generated a Golden Cross. A Golden Cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm a bull market is on the horizon. It is wise to trade in the direction of this signal. A trader’s position should either be long or neutral in the face of this signal. I look for bullish setups when this signal is in play.
The following chart illustrates the price action after resistance at $3.00, and the downtrend line was overcome.
Chart Courtesy of www.stockCharts.com
Year-to-date AMD stock has been trading with an upside bias—clearly defined uptrend with higher highs and higher lows.
The chart is littered with bullish pattern setups. The predominant patterns on the chart are pennants. This pattern, in this context, is a continuation pattern and reaffirms the current bullish trend of AMD stock.
Volume (highlighted in green) also supports the bullish case and is a textbook example of expanding on breakouts. Volume increases as the price breaks out of the pennants and new, higher price levels prevail. Volume subsequently recedes when the pennants are formed. This is a very healthy pattern of higher highs and higher lows. This reaffirms the continuation of the current trend.
The breakaway gap (highlighted in pink) occurs as the price breaks above resistance at $3.00 and simultaneously breaks above the downtrend that is predominant in the first chart. The significance of this gap is compounded. Breakaway gaps rarely get filled and almost always signal that the new trend has started. When these gaps occur and multiple signals are generated, investors who are short are caught and the proceeding rally is fuelled by buying volume and short covering. This is the perfect setup to send shares soaring.
Bottom Line on AMD Stock
AMD stock is looking bullish from multiple perspectives as they all confirm the current trend. There were numerous indicators that signalled and confirmed the current rally. As long as AMD is making higher highs and higher lows, the trend will remain intact. If shares make a lower high that is confirmed by a lower low, I will have reason to believe a correction is at hand.
