In early April, I tweeted about the potential breakdown of Advanced Micro Devices, Inc. (AMD) stock from its 15-month bull flag and its potential implications for the stock. In hindsight, I'm glad I did, because it's great to have this real-time example of my mindset, and the mindset of others in the marketplace, as the pattern played out. It was also a great opportunity to get constructive feedback in the comments section from many of the bulls at the time. Now that I've used my one joke per post allowance, let's move onto how the stock has performed since.

Below is that same weekly chart of AMD from April showing the bull flag that formed beginning in early 2017 as the stock looked to digest strong gains from late 2015 through 2017. In April, prices briefly broke below support at the bottom of the flag, as well as the 2010-2011 highs. This level was extremely important psychologically because it represented the potential failure of this bull flag, as well as the long-term double bottom that finally confirmed when prices cleared the 2010-2011 highs. (See also: Should You Buy Into AMD’s Upward Spree?)

Chart showing the performance of Advanced Micro Devices, Inc. (AMD) stock

What we saw occur when prices briefly undercut support was longs throw in the towel, with some maybe even flipping the book and joining other short sellers using the break of support as an entry signal. For a few days, the sales from these parties looked prudent, but as prices slowly started creeping higher and ultimately reclaimed support, everyone had to start buying at once. If you were long and sold, you wanted back into your position. If you were short, you wanted to close your position by buying shares, and maybe you even wanted to get long the stock. What this simultaneous reconfiguration of positions created was an extremely large imbalance of supply and demand, causing prices to rise rapidly.

So the failed breakdown was the spark, but the shorts that were squeezed were the fuel that fed (and continue to feed) this massive move.

Chart showing the short interest on Advanced Micro Devices, Inc. (AMD) stock

Above is a chart showing that AMD's short interest and days to cover hit all-time highs at the same time that prices undercut support. At its peak, nearly 25% of the available float was short, and with AMD's average volume, it would've taken more than 15 days for all of them to cover. Even with the massive move we've seen in the stock, the data as of the end of May show only a slight drop-off in short interest from its peak, and according to The Wall Street Journal's data, there's still nearly 20% of the float short as of June 11.

The Bottom Line

While the rally in Advanced Micro Devices over the past 2.5 months is truly impressive, moves like this are not as uncommon as one may think. By putting all else aside and simply thinking about the underlying emotions of fear and greed that are driving buyers and sellers, it becomes clear as to why this move played out the way it has. With that said, this stock remains extremely strong, and with 20% of the float still short and the technology sector continuing to lead, I have a feeling that we may be seeing AMD at a lot higher prices in the coming weeks and months.