Advanced Micro Devices, Inc. (AMD) stock posted strong upside in the first half of 2019, lifting into 2018's 12-year high at $34.14, but it has failed to mount this stubborn resistance level in the past three months. It may have run out of time because relative strength readings have rolled over, predicting a decline that targets the 200-day exponential moving average (EMA) above $27. Bulls need to hold that line in the sand at all costs or risk an extended slide that could relinquish the bulk of annual returns.
The 2018 and 2019 highs are narrowly aligned with the .786 Fibonacci retracement of the 10-year downtrend that found support one cent below the 2008 low in 2015. This harmonic level has a well-earned reputation for ending long-term uptrends, which is especially dangerous for AMD shareholders because the stock has gone through massive boom and bust cycles in the past, raising the odds for another broken bubble.
Chip stocks are being held hostage by endless trade war flip-flops, with the dispute between superpowers now entering its 19th month. China represents a massive profit venue for the industry, but the sword cuts both ways, with tariffs set to take a heavy toll on revenues. The clock is also ticking because the Asian nation is ramping up local semiconductor capacity, and the longer the dispute lasts, the more likely it is that U.S. companies will permanently lose market share.
AMD Long-Term Chart (1990 – 2019)
A multi-year downtrend ended at a split-adjusted $1.82 in 1990, giving way to a choppy uptick that stalled in the low $20s in 1997. The stock sold off into the fourth quarter of 1998 and turned higher once again, catching a final rally wave into the upper $40s when the internet bubble reached its peak in 2000. It collapsed with other tech stocks when the bubble burst, dumping within 1.5 points of the 1990 low in October 2002.
The stock posted impressive gains during the mid-decade bull market, stalling about six points under the 2000 high in 2006. The subsequent decline continued through the 2008 economic collapse, giving up all gains for the second time in the decade before coming to rest at $1.62 in November. A weak bounce into 2010 failed to mount the 50-month EMA, yielding two additional failures, followed by 2012 and 2015 tests at the 2008 low.
The bitcoin craze then kicked into gear, lifting AMD stock into the first uptrend of the decade. The rally paused in 2017 and resumed one year later, reaching the .786 Fibonacci retracement of the 2006 to 2015 downtrend in September 2018. It returned to that resistance level in June 2019 after a decline into the teens and has failed July and August breakout attempts. Price action is now oscillating in a dead pattern that's cutting through the middle of the four-month trading range.
The monthly stochastics oscillator reached the overbought level in May 2019 and has crossed into a sell cycle that predicts relative weakness through year end. The weekly indicator has rolled over as well, exposing multiple cyclical headwinds that now favor lower prices. It won't take much selling pressure at this point to fulfill that prediction, with the 200-day EMA above $27 marking a first downside target.
AMD Short-Term Chart (2018 – 2019)
A Fibonacci grid stretched across the 2018 into 2019 uptrend reveals excellent synergy with long-term price action, highlighted by perfect alignment between long- and short-term .50 retracement levels. The .618 retracement is also crossing through the 200-day EMA, while the .382 retracement completes this well-organized pattern, cutting through the October into December triple bottom reversal.
The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high at the 2018 price peak and entered a short-term distribution phase that ended in late October. Buying pressure through the first half of 2019 failed to reach the prior high, even though price posted a new high at $35.55 in August. This bearish divergence adds to growing signs the stock will break the current impasse to the downside and enter a sizable correction.
The Bottom Line
Bearish technical stars have aligned for a sell-off in Advanced Micro Devices stock that could reach the mid-$20s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.