Market watchers are placing bullish bets ahead of NVIDIA Corporation's (NVDA) third quarter earnings report in Thursday's post-market, but rival Advanced Micro Devices, Inc. (AMD) could offer equally potent returns in the next 12 to 18 months. While NVIDIA is still trading more than 80 points under last year's high at $292.76, AMD has just broken out to a 13-year high and could soon challenge 2000's all-time high in the upper $40s.
NVIDIA stock got clobbered in the fourth quarter of 2018, dumping more than 57% and 150 points to a 19-month low. The freefall triggered extensive technical damage while accumulating a large supply of trapped shareholders who will be looking to "get out even." That digestion process will take time to overcome, and there are no guarantees that the effort will succeed because this pattern often attracts aggressive short sellers at key harmonic levels.
In addition, NVIDIA stock has ticked higher in two broad but shallow 2019 rally waves, carving a potential a-b-c corrective pattern that has reached the 50% sell-off retracement near $210 at the same time that relative strength readings have hit overbought levels. Additional upside into the .618 or .786 retracement level is possible, but the odds for a reversal and retest of the 2018 lows are now escalating rapidly.
Meanwhile, AMD stock recently completed a breakout from a 13-month cup and handle pattern, clearing resistance near $35. The stock is now engaged in a test of new support, which bulls hope will presage a rapid advance into the 2006 peak at $42.70. That marks the last resistance level ahead of a historic test of the all-time high at $48.50. The sky's the limit once that barrier is mounted, offering the potential of excellent long-term returns.
NVDA Monthly Chart (2007 – 2019)
NVIDIA stock rallied above the 2007 high near $40 in 2015 and took off in a powerful trend advance, underpinned by heavy demand for high-end graphics cards by bitcoin miners. The rally paused after the presidential election and resumed in 2017, carving a rising channel into October's all-time high near $300. The subsequent downturn broke the channel a few weeks later and then accelerated into a vertical rout that may have ended the multi-year uptrend.
The bounce has carved two equally sized rally waves into the midpoint of the 2018 decline near $210. A Fibonacci grid stretched across that event places the .618 retracement at $227 and the .786 retracement at $255. The proximity of those barriers generates an adverse risk-to-reward profile for new positions due to high volatility and wide range movement in the past 13 months. In addition, the stock hasn't pulled back since lifting off support at $170 in September, adding to growing risk for a reversal.
AMD Monthly Chart (2000 – 2019)
AMD stock posted an all-time high in the upper $40s in 2000 and collapsed when the internet bubble burst. A mid-decade recovery fell short of the prior high, giving way to an equally ferocious decline during the 2008 economic collapse. Sell-offs into 2013 and 2015 tested that level successfully, setting the stage for a 2016 uptrend that posted two rally waves into the 2018 peak in the mid-$30s. An October 2019 breakout has attracted healthy interest, lifting price toward the .786 Fibonacci retracement of the 15-year downtrend.
That resistance level has roughly aligned with the 2007 peak, marking the final harmonic barrier before the stock reaches the all-time high. There are no guarantees that it will succeed in mounting resistance, but AMD stock is building up a nice head of steam following the breakout, significantly raising the odds. And unlike NVIDIA, there is little overhead supply and few unhappy shareholders to undermine bullish sentiment and the long-term technical outlook for AMD.
The Bottom Line
NVIDIA stock could gain ground following this week's third quarter earnings report, but rival AMD could offer equal returns with fewer sleepless nights in coming months.
Disclosure: the author held no positions in aforementioned securities at the time of publication.