Advanced Micro Devices, Inc. (AMD) reports earnings after Tuesday's closing bell, with Wall Street analysts expecting earnings per share (EPS) of $0.08 on $1.52 billion in second quarter revenues. The stock lost ground after the company met first quarter expectations and reiterated full-year guidance in April, ahead of a recovery wave that has now completed a nine-month cup and handle pattern. Solid metrics should trigger a breakout, lifting this chip darling to a 13-year high.

Intel Corporation (INTC) closed lower on Friday after posting strong quarterly results, dropping the PHLX Semiconductor Index (SOX) below Thursday's all-time high at 1,625. The reaction to AMD earnings could tell the tale for the market-leading chip sector, with a breakout gaining traction through the third quarter while a decline would set the stage for a mid-year correction that shakes out the large supply of weak hands.

Realistically, it's been boom and bust for AMD in the past three decades, with vertical rallies and equally ferocious declines. Worrisome for bulls, the uptrend that started in 2015 has now reached within a few points of major tops posted in 2000 and 2006. As a result, enormous buying power may be needed to overcome those obstacles in the coming months, which seems unlikely due to growing trade tensions that may cut into worldwide semiconductor sales.

AMD Long-Term Chart (1995 – 2019)

Long-term chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)

The stock sold off for six years into 1990 and turned higher, completing a round trip into the 1984 high near $20 in 1995. A breakout in the first quarter of 2000 went ballistic, doubling in price into June's all-time high at $48.50, ahead of a brutal 94% decline after the internet bubble burst. A powerful recovery wave set into motion during the mid-decade bull market, stalling within six points of the prior high in 2006.

That marked the highest high in the past 13 years, ahead of a downturn that accelerated during the 2008 economic collapse. This destructive force matched the historic 2000 to 2002 rout, undercutting the 2002 low before posting a 33-year low at $1.62 in November. A bounce into the new decade stalled just above $10, yielding a slow-motion pullback that tested the deep low in 2013 and again in 2015.

AMD stock charged higher with rival NVIDIA Corporation (NVDA) at the start of the cryptocurrency bubble in 2016, with their high-powered graphics boards flying off the shelves to mine digital currency. The rally paused in 2017 after hitting a 10-year high and resumed in the third quarter of 2018. Resilience during the fourth quarter swoon encouraged cautious investors to come off the sidelines in early 2019, lifting price into the 2018 high at $34.14 in June.

AMD Short-Term Chart (2018 – 2019)

Short-term chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)

A small rounded pullback near range resistance has now completed a nine-month cup and handle pattern, while the on-balance volume (OBV) accumulation-distribution indicator has failed to reach the September 2018 peak. It won't take tremendous buying power to lift OBV through 2018 resistance, but volume has been dropping for months, indicating little speculative fervor. As a result, it makes sense to tighten up stops, just in case a reversal traps complacent shareholders.

In addition, price action will face major testing above $38 after a breakout, with the .786 Fibonacci retracement level of the 15-year downtrend acting as a major barrier. In addition, the 2000 and 2006 highs predict that headwinds will continue through the low $40s, limiting reward while increasing risk. That could be a big deal in the tenth year of an economic expansion, with many analysts predicting a recession in the next 12 to 18 months.

The Bottom Line

AMD stock has carved a breakout pattern ahead of this week's quarterly report and could head higher, but strong overhead resistance could limit shareholder returns.

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