Advanced Micro Devices, Inc. (AMD) got pummeled in September and October, giving up more than half of the 25-point rally that started from a 52-week low in April. The bounce into December raised hopes that the carnage had come to an end, but the stock turned tail when it filled the October gap and is now trading less than two points above October's low. More importantly, price action looks like a classic waterfall pattern that typically precedes an intermediate breakdown.

However, the decline isn't as bearish as it looks because the stock has posted gains in excess of 70% so far in 2018, after starting the year around $10.00. Compare this superior performance to other issues in your trading and investment accounts, and be thankful that things aren't worse. Of course, that's no consolation for bagholders who took exposure in the $30s, now licking their wounds on the sidelines or still positioned in large losses.

AMD Long-Term Chart (1990 – 2018)

Long-term chart showing the performance of Advanced Micro Devices, Inc. (AMD) stock
TradingView.com

The stock posted an 11-year low at a split-adjusted $1.82 in 1990 and turned higher, grinding out a volatile uptrend that carved many steep pullbacks into the 1997 top in the mid-$20s. It fell into the single digits one year later and then bounced into a momentum-fueled advance, posting an all-time high at $48.50 at the turn of the millennium. The subsequent decline unfolded in three brutal selling waves that gave up nearly all gains posted in the 1990s.

Renewed optimism in tech-land established a new uptrend in 2003, setting the stage for solid gains that persisted into the 2007 test of the 2000 high. Buying pressure fizzled out about six points under the prior peak, giving way to a downtrend that exceeded the ferocity of the 2000 into 2002 decline. Selling pressure finally eased in November 2008 after the stock undercut the 1990 low by 20 cents, posting a horrific 29-year low.

The subsequent recovery wave stalled near $10.00 in 2010, giving way to nearly six years of laggard behavior, while other tech stocks rocketed to all-time highs. Intermediate downturns tested the 2008 low in 2012 and again in 2015, completing a massive triple bottom pattern that yielded higher prices in early 2016, when the momentum crowd took control in a vertical buying spree, fueled by bitcoin mining mania. 

This rally wave ended in July 2018 after the stock reversed at the trendline of lower highs going back to 2000. Price action after the prior reversals unfolded through vertical selling impulses that eventually posted multi-year lows, raising the odds that this downturn won't end until it reaches the single digits. And ominously, the monthly stochastics oscillator still hasn't reached the oversold level, despite more than five months of intensely bearish price action.

AMD Short-Term Chart (2018)

Short-term chart showing the performance of Advanced Micro Devices, Inc. (AMD) stock
TradingView.com 

A Fibonacci grid stretched across the 2018 uptrend uncovers hidden support and resistance levels that could come into play in the coming months. The stock spent most of October testing the .382 retracement level and 50-day exponential moving average (EMA), breaking down into month's end. The alignment between the .618 retracement, 200-day EMA and July 26 gap ended selling pressure in early November, giving way to a reactive bounce that stalled after mounting the .50 retracement at month's end.

A breakdown to new lows would shift attention to the .786 retracement level near $14.50, which also produced the longest-lasting consolidation pattern of the five-month uptrend (blue line). This also marks the last harmonic support level, with a breakdown raising the odds for a 100% retracement down to the April low at $9.04. That bearish target also tracks expectations after October's third wave continuation gap, printing at the dead center of a potential Elliott five-wave decline.

The Bottom Line

Watch accumulation-distribution indicators closely while AMD tests the October low near $16, looking for signs of panic that could signal another 40% downside into the single digits.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.