Semiconductor company Advanced Micro Devices, Inc. (AMD) has formed a classic wedge pattern on its price chart. The wedge pattern suggests a period of uncertainty for the stock. It's formed as investors are not sure about the ultimate direction shares are headed.
We can all agree that there's a lot of uncertainty in the stock market right now – global tensions, economic recessions, pandemics, riots, etc. And stocks move on every little news item that comes out.
But when we follow the technical patterns, we don't get caught up in all of this noise – the chart does the talking for us. In a wedge pattern, every rally is stopped by a key resistance level (in red), and every selloff is met with a strong, rising support area (in green). Take a look:
When the breakout occurs, the height of the pattern is the expected move – roughly $20 per share in this case. With the stock sitting around $53, that's a 37% expected move in either direction in the coming weeks.
Most consolidation patterns end up breaking out in the same direction the stock was heading in before it consolidated. In the case of Advanced Micro Devices, the stock was clearly heading higher before the peak in late February. Then the wedge pattern began to form.
On June 10, the stock experienced a false breakout. While the stock closed above the resistance level, it opened within the wedge pattern the very next day. This was a bearish shooting star candlestick on June 10. Now that the stock has dipped from there, it has bounced off support once again and is still stuck trading in this wedge pattern.
Seeing that the resistance level has been tested three times, and one was a false breakout, we know that there are buyers trying to push this stock even higher. While the smart play will be to jump in once a breakout occurs and capitalize on the 37% expected move, all signs are pointing to an upwards breakout at this point.
The Bottom Line
Advanced Micro Devices stock is in a position to surge or fall 37% in the coming weeks. The wedge pattern indicates that an upside breakout is the most likely outcome, but the better way to trade it is once the breakout occurs. A 37% expected move leaves us plenty of room to profit.