AMD Stock: Dip Buyers Locked and Loaded

Advanced Micro Devices, Inc. (AMD) is trading sharply higher on Wednesday in reaction to bearish commentary directed at much larger rival Intel Corporation (INTC). This timing could be fortuitous, with AMD recently completing a successful two-month test at range support near $10. In turn, this bullish action predicts that the chipmaker will find its way back to 10-month range resistance above $15, which also marks a 10-year high.

This rally may finally signal the resumption of the long-term uptrend, allowing price to break range resistance and head into the mid-$20s for the first time since 2006. Even so, there is no rush to jump on board, because 2017 technical obstacles will take time to overcome, raising the odds for two-sided price action characterized by filled gaps, failed price swings and multi-week pullbacks. (See also: AMD May Have Bottomed and Is Getting Set to Rise.)

AMD Long-Term Chart (1990 – 2017)

The company joined the public exchanges in the single digits in the 1970s and tested those depressed levels in 1990 following a six-year downtrend. It turned sharply higher into the second half of the decade, topping out at $24.25 in March 1997 and selling off to $6.38 one year later. Prolonged basing action near that price level yielded a fresh trend advance at the start of the new millennium, peaking at an all-time high in the upper $40s in May 2000.

The stock plunged when the internet bubble burst, descending in three waves into an 11-year low at $3.10 in October 2002. It spent the next four years grinding out a V-shaped recovery pattern that stalled within six points of the 2000 high in February 2006. That marked the highest high in the past 12 years, ahead of a steep decline that accelerated during the 2008 economic collapse, undercutting the 1990 low by 20 cents in November.

A bounce ended just above $10 in April 2010, giving way to a five-year decline that found support four cents under the 2008 low. It turned sharply higher in April 2016, riding piggyback on NVIDIA Corporation's (NVDA) parabolic uptrend, driven by maturing virtual reality technology and blockchain connection. That uptick stalled within a point of the .382 Fibonacci sell-off retracement level in March 2017, yielding a rectangular pattern that is still in play in January 2018. (For more, see: Top 3 Shareholders of AMD.)

AMD Short-Term Chart (2015 – 2017)

Price action between 2008 and 2015 completed a long-term triple bottom, generating a new uptrend when the stock rallied above the six-year trendline of lower highs in the second quarter of 2016. The sell-off following the February 2017 high found support at the .382 rally retracement in May and held that level in a December test. This constructive price action raises the odds for a bullish swing to range resistance, with a first target at October's unfilled gap between $13 and $14.25.

On-balance volume (OBV) peaked in June 2017, nearly four months after the stock topped out, and entered a modest distribution phase that has held high in the multi-year range into 2018. Interested market players should watch the six-month trendline of lower OBV highs in the coming weeks, with a breakout likely to generate substantial buying power. That rally may come after price action fills the October gap.

This week's buying surge has lifted the stock into 200-day exponential moving average (EMA) resistance, which ended the last recovery wave in November. This price zone often generates between two and four weeks of testing, signaling caution in taking long-side exposure too early. Indeed, a better trade entry may come when the gap between $11 and $11.50 gets filled, which is likely to happen before substantial upside.

The Bottom Line

Advanced Micro Devices stock has rallied to a two-month high and is testing resistance at the 200-day EMA. This bullish price action signals a successful defense of range support near $10, raising the odds for continued upside into the mid-teens. (For additional reading, check out: Why Nvidia, AMD Aren't Including Bitcoin in Forecasts.)

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

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.