Advanced Micro Devices, Inc. (AMD) stock is showing signs of fatigue after February of the historic rally of more than 20 years of resistance, potentially setting the stage for a failure of the escape, which ends the share price long-term bullish trend. Fortunately for the chip sector of the amateurism, that looks like a stock weakness, because as rival NVIDIA Corporation (NVDA) recently completed an impressive 20-month cup and handle breakout.
It is difficult to identify a single bearish catalyst, responsible for the relative weakness, with sales of video games, consoles, and graphics cards and prices to the national stay-at-home and quarantine orders. While the impulse is disappearing little by little in the rearview mirror, the new generation of game systems will be released in the fourth quarter, keeping attention, and significant flows of capital into the market of these groups.
The increase in China–US trade tensions may be responsible for part of the weakness, but this catalyst does not appear in the PHLX semiconductor Index (SOX), at least not yet. Of course, we do not yet know the details of President Trump retaliation of the new Hong Kong the security law, which may include the dismantling of the phase a trade agreement or further disruptions in the sharing of technology between the superpowers.
AMD price history has a chain of feast and famine periods, with huge gatherings elucidated through equally massive sell-offs. It is hoped that the month of February 2020 breakout above the 2000 high at $48.50 would finally break this cycle, but the stock reversed less than two weeks later, entering a trading range that has started its third month. In the Long term, the relative strength indicators have picked up on this character shift, the entry of the sale cycles that may persist in the third quarter.
AMD’s Long-Term Chart (1985 – 2020)
In 1997, a breakout above 1984 resistance above $20 print the third item on a trend line to rise, leading to a reversal that dropped the stock to a two-year low in the single digits. It is finally mounted on the curve of the trend in March 2000, and is entered in a parabolic advance in a head to $48.50 in June. The drop crashed through the trendline before it bounces in the lower part of the adolescence and the reversal of the line once more in 2001. The decline has finally ended at 11-year low in 2002, before an impressive recovery that has reached the trend line again in 2006.
Selling pressure in 2009, dumped the stock in the single digits, a debasement of the 2002 low before a low bounce failed at the 50-month exponential moving average (EMA) resistance in 2010, 2011 and 2012. It has tested the lows of 2009 to 2012 and 2015, before joining NVIDIA in a monster uptrend, driven by bitcoin mining mania. This increase in the mounted 2006, high in December 2019 and the 2000 two months later, the publication of all time at $59.27 on Feb. 19.
AMD in the Short-Term Chart (2018 – 2020)
The balance volume (OBV), the accumulation-distribution indicator up to a new high with prices in February, and pulled back in early April, while the increase in subsequent posted an all-time high before falling back, and not to the breakout. OBV, then ticked lower to May, back from a two-month low this week. The stock has also broken the short-term trendline of rising lows during this period and scored a second try in the 50-day EMA.
Thursday low $49.09 now marks a line in the sand between bull and bear power, with a breakdown set of sell signals that would suggest a failed breakout above the upper red line at $48.50. Buy signals at this point need to wait for a rebound back through the red line above $55, the recovery of the bullish technical posture necessary for the success of a follow-through rally above the February high.
The Bottom Line
AMD stock is showing signs of weakness in technique of more than three months after the month of February, in small groups, warning shareholders that the recovery could fail.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.