Advanced Micro Devices, Inc. (AMD) reports fourth quarter earnings after the close on Jan. 29, with analysts expecting the chipmaker to post earnings per share of $0.09 on $1.45 billion in revenues. The stock gapped down and sold off more than 15% in a single session after the October release, with investors abandoning ship following downside revenue guidance. Consensus estimates now sit at the low end of that warning, making it easier to beat expectations.

The October decline ended quickly in the mid-teens, giving way to a bounce that filled the five-point gap ahead of a December downturn into new support. The January uptick has reached the upper half of the four-month trading range, making it easier for a buy-the-news reaction to mount range resistance and confirm a double bottom reversal. In turn, that would set the stage for continued upside into September's 12-year high in the mid-$30s.

However, traders should take a close look at the monthly chart because AMD has entered trend-killing declines from similar price levels three times in the past 22 years. This synchronicity is likely to come into play if the company reports another weak quarter or reduces first quarter guidance. Look for a quick trip into fourth quarter support if that happens, ahead of a breakdown that could reach the 2018 low in the single digits.

AMD Monthly Chart (1984 – 2019)

Monthly technical chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)

The stock finally returned to the 1984 high at $20.56 in 1997 and broke out, but the rally failed, giving way to a decline that found support at $6.38 in 1998. The subsequent bounce went parabolic a few months later, finally stalling in the upper $40s at the height of the internet bubble in 2000. It fell as quickly as it rose, losing more than 45 points in less than two and a half years before bottoming out two points below the 1998 low in October 2002.

A steady uptick stalled within six points of the 2000 high in 2006, yielding a fresh downturn that accelerated during the 2008 economic collapse. This decline carried further than the prior downtrend, ending in 2009 within a few cents of the 1991 low under $2.00. A quick bounce into the new decade stalled just above $10.00, giving way to successful support tests in 2012 and the fourth quarter of 2015. 

Bitcoin mining mania spread from NVIDIA Corporation (NVDA) to AMD in 2006, generating a powerful uptrend backed by strong buying interest. The uptick paused in 2017 and resumed in 2018, reaching the highest high since 2006 in September, ahead of a correction that has been testing support at the June breakout for the past three months. Meanwhile, the monthly stochastics oscillator crossed into a sell cycle in October and still hasn't reached the oversold level, predicting that relative weakness will persist into the second quarter.

AMD Daily Chart (2017 – 2019)

Daily technical chart showing the share price performance of Advanced Micro Devices, Inc. (AMD) 

Price action into October broke the .618 retracement of the five-month uptrend and whipsawed across that level twice into January 2019. The 200-day exponential moving average (EMA) went horizontal less than one point above the retracement at the same time and has held that orientation while the stock has carved a small-scale triangle at support. This establishes a bullish base that should respond well to an upbeat earnings report next week.

The on-balance volume (OBV) accumulation-distribution indicator dropped from a multi-year high in September but has held well above the July low, indicating loyal sponsorship despite the 50% decline. These shareholders should now hang tough unless the fourth quarter lows break, with that event having the power to trigger a race for the exits. That seems unlikely, given the constructive pattern off the lows, but it's hard to ignore the bearish message of the long-term stochastics cycle.

The Bottom Line

AMD stock has arrived at a major crossroads, with fourth quarter earnings having the potential to trigger a high-percentage rally or decline.

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