Advanced Micro Devices, Inc. (AMD) beat first quarter estimates on Wednesday evening, with revenues rising an impressive 39.8% year over year to $1.65 billion. A bullish second quarter outlook added to strong metrics, triggering a double-digit percentage rally that settled near $10.70 ahead of Thursday's opening bell. This placement will generate an immediate test of resistance at the 50-day exponential moving average (EMA), which the stock has struggled to remount since a March breakdown.

The chipmaker topped out in the first quarter of 2017 but has held a trading range that has carved a 16-month descending triangle pattern. An early April breakdown trapped bears in a strong reversal that could signal the end of the corrective pattern and start of a long-term recovery. However, it will now take a buying spike above triangle resistance at $13.25 to escape the forces of gravity and challenge 2017's 10-year high. (See also: Chipmaker Stocks May Fall 10% Over the Short Term.)

AMD Long-Term Chart (1990 – 2018)

AMD stock ended a multi-year downtrend in 1990 and turned higher into 1993, stalling in the mid-teens. It broke out above that resistance level in 1997 and reached the mid-$20s, but the rally then failed, generating a steep decline into the single digits. A final burst of bullish energy into the millennium posted an all-time high at $48.50 before rolling into a downtrend that hit an 11-year low at $3.10 in October 2002.

A powerful recovery rally erupted during the mid-decade bull market, lifting the stock within six points of the 2000 high in February 2006. That marked the top, ahead of a brutal downturn that broke through 2002 support before ending at an 18-year low in November 2008. It then bounced into the new decade and stalled just above $10.00, with that level ending upside progress for the next six years. 

Dismal price action into 2015 held two tests at 2008 support, carving a multi-year triple bottom that yielded a strong 2016 uptrend, in sympathy with rival NVIDIA Corporation (NVDA). AMD shares posted impressive gains into March 2017 and stalled at the highest high since 2007, while a July test at resistance triggered a major reversal. The subsequent decline held horizontal support into an April 2018 breakdown that generated a strong bounce, setting off preliminary buying signals.

[Learn to recognize technical buying and selling signals in Chapter 5 of the Technical Analysis course on the Investopedia Academy]

AMD Short-Term Chart (2017– 2018)

The monthly stochastics oscillator rolled into a major sell cycle in September 2016, finally crossing higher in January 2018, but the buying impulse failed with a secondary crossover earlier this month. This signal tells armchair technicians that the stock will face hidden headwinds during the current rally attempt and could struggle to mount the 50-day EMA near $10.80, with further progress hindered by the 200-day EMA near $11.40.

On-balance volume (OBV) rocketed higher at the start of 2016 following several years of dead action and stalled with price at the end of 2016, right after mounting the 2006 peak. It has ground sideways since that time, carving a holding pattern that has matched the descending triangle. It is currently situated near the lowest low of 2018, suggesting that it will take considerable buying interest to challenge the indicator high posted in June 2017.

It is tough to recommend jumping on board right here, with overhead supply and adverse relative strength cycles undermining upside energy. Even so, pullbacks to pattern support near $9.50 should offer low-risk buying opportunities for dip buyers and long-term positions. In addition, market watchers should pay attention to monthly stochastics because the next bull crossover could initiate a healing phase that allows the stock to challenge pattern resistance near $13.25. (For more, see: Why AMD Options Traders Are Bearish Long Term.)

The Bottom Line

AMD has escaped disaster in recent weeks, finding buyers after breaking down from a year-long descending triangle top. Strong earnings and bullish guidance should underpin short-term buying interest, but it may take time for a recovery rally to overcome significant overhead supply. (For additional reading, check out: The Industry Handbook: The Semiconductor Industry.)

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