Advanced Micro Devices, Inc. (AMD) shares surged above the June 2000 high at $48.50 on the first trading day of 2020, posting an all-time high after an impressive run that started in the $20s in October. Stable chip pricing and the Phase 1 trade deal have underpinned the upside, with many sector issues posting new highs. More importantly, the PHLX Semiconductor Index (SOX) has cleared 20-year resistance after a two-year testing phase, predicting additional gains for the group in coming years.

Bearish overnight events dropped AMD stock under the prior high in Friday's pre-market, bringing yesterday's breakout into doubt. This price action isn't surprising because big old highs rarely yield easy upside, often triggering months of whipsaws and reversals. It's unlikely to be different this time around, so investors may consider taking profits despite broad industry tailwinds, because a better opportunity could come at a lower price.

AMD Long-Term Chart (1990 – 2020)

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

The stock bottomed out at $1.82 in 1990 after a multi-year downturn and turned sharply higher into 1995 before stalling in the upper teens. It finally cleared resistance in 1999 and surged higher with other tech plays into the new millennium, posting a final high at $48.50, the price level that was breached this week. It fell as quickly as it rose into the fourth quarter of 2002, finally settling at an 11-year low in the deep single digits.

A strong mid-decade uptrend stalled just six points below the 2000 peak in 2006. The subsequent decline relinquished those gains as well as all upside since 1990, undercutting the low posted that year by 20 cents in November 2008. The stock bounced into the new decade, but the rally ran out of steam before reaching the double digits, setting the stage for successful 2012 and 2015 retests of the bear market low.

NVIDIA Corporation's (NVDA) 2016 upside explosion expanded into AMD, completing a triple bottom that has supported a strong uptrend in the past four years. That bullish impulse finally completed a 100% retracement into the 2000 high this week, marking an event that has a well-earned reputation for triggering major reversals. As a result, it is best to avoid breakout strategies until price action demonstrates the firepower need to clear the upper $40s.

The monthly stochastics oscillator crossed into the overbought zone in June 2019 and has whipsawed near that lofty level into 2020. This is consistent with a strong uptrend, but the placement won't require much downside to set off a long-term sell signal. It's impossible to pick the exact top with this configuration, which tells investors to take moderate actions to control risk and protect profits.

AMD Short-Term Chart (2017 – 2020)

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

The on-balance volume (OBV) accumulation-distribution indicator topped out in September 2018 after a steady accumulation phase. Modest distribution into October 2018 reflected garden variety profit taking rather than increased selling interest, setting the stage for persistent buying interest that has lifted OBV to a new high with advancing price. This bullish convergence may also support additional gains prior to a major reversal.

The simplest management strategy, given the combination of bullish technicals and an adverse price structure, is to place stops at price levels where discomfort will increase. In turn, this will allow the position to benefit from additional upside, if any, while understanding that the uptrend may be coming to an end. A more sophisticated approach will be to buy put protection or use other options plays to manage growing risk.

The Bottom Line

AMD stock has completed a 100% retracement into the 2000 peak, raising the odds for a multi-month downturn.

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