Advanced Micro Devices, Inc. (AMD) shares entered 2017 on a high note, ascending through the final stage of a strong uptrend that posted nearly 300% gains. The stock stalled above $15.50 just two months later, spending the rest of the year disappointing shareholders who expected AMD to keep pace with much larger rival NVIDIA Corporation (NVDA). Even worse, price action has settled into an annual loss, raising the odds that end-of-year tax selling pressure will take control in the coming weeks.

The stock has traded in a relatively narrow range since dropping to $9.85 in May, carving a rectangle pattern that could signal a long-term top or just profit taking ahead of higher 2018 prices. Unfortunately for beaten-down bulls, bears hold a sizable advantage because accumulation-distribution readings have fallen to their lowest levels since February, signaling a slow but persistent capitulation by institutions and the retail crowd.

In addition, the chipmaker broke 200-day exponential moving average (EMA) support in October and failed a November test to remount that level, reinforcing new resistance at $12. Continued failure to trade above that critical level is likely to attract a large population of short sellers expecting the stock to break 2017 support and descend through the single digits. Given the threat, market players sitting on long positions should consider relatively tight stops to guard against major losses. (See also: Morgan Stanley: AMD Cryptocurrency Chip Market to Drop by 50%.)

AMD Long-Term Chart (1990 – 2017)

 

The stock ended a multi-year decline at a split-adjusted $1.82 in 1990 and entered a choppy uptrend that gathered force in 1999, at the height of the net bubble. The rally posted an all-time high at $48.50 in May 2000, giving way to an Elliott five-wave decline that came to rest at an 11-year low just above $3.00 in October 2002. A strong bounce stalled within six points of the prior high in the first quarter of 2006, with that peak marking the highest high in the past 11 years.

The subsequent downtrend accelerated into November 2008, carving a more brutal Elliott pattern than the 2000 to 2002 bear market. It settled at a 17-year low near $1.50 and turned higher, stalling just above $10.00 at the start of the new decade. A reversal into 2011 inaugurated a long period of underperformance that generated two tests at the 2008 low – in 2012 and again in 2015. The 2015 decline undercut the low by a single penny, striking the lowest low since 1979 while signaling a major bottom. (For more, see: AMD: The Long-Term View.)

AMD Short-Term Chart (2016 – 2017)

 

The subsequent uptrend broke the multi-year string of lower highs and lower lows in December 2016, when the stock rallied above the 2010 high before topping out in the mid-teens less than three months later. The stock has tested new support at the psychological $10 level four times since January, while two tests at range resistance have failed to trigger a breakout. October's lower high presaged decreased buying power, ahead of limp action at range support that generated a seven-month low at $10.53 last week.

On-balance volume (OBV) surged off a deep low in April 2016, when the stock rallied out of an 18-month inverse head and shoulders basing pattern in sympathy with NVIDIA, which had entered a historic trend advance. The indicator peaked in June 2017 and has carved five lower highs since that time while dropping to the lowest low since February. In turn, this signals measured distribution that will escalate if the stock breaks down into the single digits. (See also: AMD May Have Bottomed, Stock Set to Rise.)

The Bottom Line

Advanced Micro Devices has struggled in 2017, while the PHLX Semiconductor Index (SOX) has lifted to a 17-year high, signaling a bearish divergence that could generate a ferocious downtrend if the stock breaks major support at $10. Bearish risk is likely to increase through December, with the stock vulnerable to end-of-year tax selling pressure. (For additional reading, check out: SOX Semiconductor Index at 17-Year Resistance.)

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

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