Advanced Micro Devices, Inc. (AMD) shares have risen more than 130% so far in 2018 and an astounding 165% since posting a 16-month low in April. Despite those fabulous gains, technical elements are aligning perfectly for the stock to double once again in coming months, perhaps reaching as high as the low to mid-$40s. This buying surge could offer a profitable opportunity for those left on the sidelines by this momentum superstar.
It might sound odd to make this bullish call, given outsized gains since April and an underperforming semiconductor sector, but this chip stock has a tendency to go its own way regardless of sector strength or weakness. It has the added benefit of market history, recalling the historic 2016 run when it tripled in price, as well as parabolic 2000 and 2006 rallies that started near current price levels. (See also: AMD Stock Seen Rising to Highest Level in Decade.)
AMD Long-Term Chart (1990 – 2018)
A multi-year downtrend bottomed out at $1.82 in the second half of 1990, giving way to an uptrend that continued into 1995, lifting the stock into the upper teens. Keep that deep low in mind because it got tested in 2008, 2012 and 2015, ending steep declines. Mixed action took control through the second half of the 1990s, with volatile swings and a buying climax that posted an all-time high at $48.50 in June 2000.
The stock plunged with the tech sector when the internet bubble burst, grinding out in multiple waves that ended at $3.10 in October 2002. The subsequent bounce unfolded at the same trajectory as the prior decline, lifting the stock within six points of the 2000 high in the first quarter of 2006. That marked the highest high in the past 12 years, ahead of a major sell-off that ended at 1990 support in November 2008.
A 2015 retest at the low completed a massive double bottom reversal at the same time that momentum buyers rediscovered NVIDIA Corporation (NVDA). The two stocks went airborne through 2016, posting triple-digit percentage gains. AMD stalled in the upper teens in February 2017 and dropped into a 15-month correction, ahead of a June 2018 breakout and momentum wave that that posted an 11-year high earlier this month.
The rally has now reached the mid-$20s, where 1999 and 2005 parabolic impulses generated climactic buying waves that doubled the stock's price in just three to six months. If past is prologue, fractal behavior could kick off a third parabolic burst that reaches the $40s, perhaps as early as the first quarter of 2019. Of course, there are no guarantees, and market players wishing to profit from this analog behavior should place trailing stops to lock in profits. (For more, see: A Trader's Guide to Using Fractals.)
AMD Short-Term Chart (2017 – 2018)
A Fibonacci grid stretched across the 2006 into 2015 downtrend organizes price action, with the rally recently piercing the 50% retracement level. The .618 retracement at $27.00 marks the next hidden barrier, suggesting that the rally will pause or reverse in the upper $20s. However, parabolas can develop unique technical mechanics, as evidenced by price gapping through resistance at the 50% level. Similarly bullish behavior at the .618 level would reinforce the fractal setup, adding a note of confidence to momentum positions.
Price action between April and June 2018 may have carved an Elliott five-wave rally set that marks a completed first wave in a larger-scale five-wave pattern. If so, it's possible that the Aug, 24 gap marks a third-wave continuation gap that eventually measures to the 50% level of the third wave and entire five-wave set. That arcane math predicts that the rally will end in the mid- to upper $30s (22.50 - 9.05 = 13.45 AND 22.50 + 13.45 = 35.96), close enough to the 2000 and 2006 peaks to fulfill the bullish forecast. (See also: AMD Moves into Overbought Territory After Analyst Update.)
The Bottom Line
Advanced Micro Devices has carved a rare fractal pattern that has the potential to post triple-digit percentage gains in the coming months. (For additional analysis, check out: Learning From AMD's Massive Move.)