Price Action Continues to Suggest Higher AMD Stock Prices
AMD Stock: Trending Higher
Equity indices are forging new all-time highs, as an equity bull market has now gripped the globe. Stocks as an asset class are once again in favor, and since Donald Trump was elected as President of the United States, the rally in this asset class has only accelerated to the upside. The sector that shined bright in 2016 was the semi-conductor stocks, and 2017 has done little to slow the enthusiasm for this sector. On February 9, 2017, I published a report on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock titled “AMD Stock Chart Implies MUCH Higher Prices.” This report suggested that the rally in Advanced Micro Devices was set to continue. There are now new indications that support the notion of higher prices.
Before I begin, I need to clarify that my investment views are generated using technical analysis. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, my analysis is heavily reliant on the patterns and indicators that are generated on a company’s price chart. I do respect fundamental valuations, but I find that technicals provide an edge in producing timely investment strategies.
The following Advanced Micro Devices stock chart illustrates the price action that will dictate the next direction the share price will take.
Chart courtesy of StockCharts.com
Since late February, AMD stock has been putting in a pennant. This pattern contains two converging trend lines and is similar to a triangle pattern, but only on a smaller scale. As the pattern progresses, there is a confinement of space, which causes momentum to be stored within the price pattern. When price exists the price pattern, the momentum is then released. The direction that price exits this pattern in will determine the next move that AMD shares are going to take.
On March 31, 2017, price exited the pennant in an upward direction, suggesting that share prices are now set to trend higher. This suggestion will be confirmed when AMD shares close above resistance at $15.50. Additionally, this bullish suggestion will be denied if AMD shares close below support at $12.25.
The presumed upward direction suggested by the pennant price pattern is part of a larger predominant bullish trend that began in February 2016. This predominant trend is illustrated on the following Advanced Micro Devices stock chart.
Chart courtesy of StockCharts.com
It may seem hard to believe, but AMD stock was trading as low as $1.78 in January 2016. Now it sits at $14.64, representing an impressive 734.29% in a little over two years. This advance has been supported by bullish constructive price action. Bullish constructive price action consists of a two-wave structure: impulse waves, which are highlighted in green, serve to advance the share price, and consolidation waves, which are highlighted in purple, serve to alleviate overbought conditions and set up the next advancing impulse wave.
In November of last year, a consolidation pattern was completed, and an impulse wave has been in development ever since.
The moving average convergence/divergence (MACD) indicator in the lower panel of the chart above confirmed the notion that an impulse wave was set to develop. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum signals.
A bullish cross was generated in November 2016, and this indicator suggested that bullish momentum was propelling AMD stock. As a result, the path of least resistance was geared towards higher prices. This bullish signal coincided with the completion of the consolidation wave, and together, they both confirmed the notion that an advancing impulse wave was set to develop. This indicator remains engaged in a bullish manner and continues to suggest higher prices are likely.
The following price stock chart illustrates a potential price objective for Advanced Micro Devices stock.
Chart courtesy of StockCharts.com
The AMD stock chart above illustrates a price objective that is based on using the theory of parabolic extensions. This theory states that the impulse waves that are separated by a consolidation wave will mirror each other in terms of length, and the consolidation wave acts as a midpoint. This theory is slightly different than the regular price objective theory in that the length of the first wave is measured on a log-based chart and is then extrapolated higher using the midpoint. Applying this theory to the chart above produces a potential parabolic extension price of $24.50.
Bottom Line on AMD Stock
I am bullish on Advanced Micro Devices stock because the price action and indicators suggest a bullish view is warranted. The resolution of the pennant price pattern serves to suggest that the trend towards higher prices is still in progress, and the price objective suggested by the parabolic extension is still in play. I will remain bullish on AMD stock until there are indications on the price chart that another view is warranted.
