2022 was a crushing time for Advanced Micro Devices (AMD) investors…

It peaked at its all-time high in late-2021. But AMD lost two-thirds of its value before bottoming out in October last year.

Since then, AMD has been steadily grinding higher.

Disappointing earnings and guidance this month saw its shares drop as much as 9% on the day. Yet AMD bounced back after news broke about its AI-chip collaboration with Microsoft.

However, momentum now looks to be stalling. So today I want to see how things might play out from here…

Bullish Pattern Breaks Down

On the chart below, you can see the tail end of AMD’s downtrend that began back in November 2021.

That down move saw a series of lower highs and lower lows – such as those in June, July, and August. That’s a common bearish pattern.

Advanced Micro Devices (AMD)

Source: e-Signal

However, as the Relative Strength Index (RSI) gradually rallied (red line) from oversold territory, AMD was able to build a base in October.

AMD then broke higher as the RSI bullishly broke into the upper half of its band (above the green line).

After a pullback through December, AMD resumed its rally at the start of this year. That rally coincided with two key technical signals…

1. The RSI remained bullishly in its upper range (until AMD’s pullback in mid-April).

2. The 10-day Moving Average (MA, red line) broke above the 50-day MA (blue line) with both tracking higher.

And notice the price pattern of AMD since its rally began in October…

As I mentioned, AMD made a series of lower highs and lows throughout its downtrend in 2022. This time, though, the opposite pattern drove AMD’s rally…

As the chart shows, AMD made a series of higher highs at ‘1,’ ‘3,’ and ‘5’… and higher lows at ‘2,’ ‘4,’ and ‘6’ – a classic bullish pattern.

Take another look:

Advanced Micro Devices (AMD)

Source: e-Signal

AMD bounced at ‘6’ due to news of the Microsoft AI-chip story. However, AMD topped out at a lower high at ‘A.’

Although the RSI has broken back into its upper band for now… it looks as though momentum is stalling.

This recent rally is also different from the previous rallies up to the peaks at ‘1,’ ‘3,’ and ‘5’…

In those cases, the RSI rallied all the way to overbought territory (upper grey dashed line) before rolling over and reversing.

So what am I looking for around here?

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Watch Out for Reversals

For AMD’s rally to regain momentum, we’ll need to see the RSI continue to track in the upper half of its band (above the green line). The longer the RSI can remain in this area, the stronger that rally could be.

The next test for AMD’s rally would then be to break above its high at ‘5.’

However, as we saw with the earlier peaks, we need to keep an eye out for any reversals.

The other thing I’ll be watching is our two MAs… As you can see, the 10-day MA has only recently broken back above the 50-day MA.

We’ll now need to see the 10-day MA accelerate above the 50-day MA as confirmation of AMD’s rally resuming.

If, however, the 10-day MA turns down or the RSI breaks lower (and into its lower range), then we will know that AMD’s rally has petered out for now.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Mailbag

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