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Stocks  | June 1, 2020

Advanced Micro Devices, Inc. (AMD) stock is showing signs of fatigue after February's historic rally above 20-year resistance, potentially setting the stage for a failed breakout that ends the stock's long-term uptrend. Fortunately for chip sector aficionados, this looks like stock-specific weakness because rival NVIDIA Corporation (NVDA) has just completed an impressive 20-month cup and handle breakout.

It's hard to identify a single bearish catalyst responsible for the relative weakness, with sales of video games, consoles, and graphic cards surging during nationwide stay-at-home and quarantine orders. While that impulse is retreating slowly into the rear-view mirror, new-generation game systems will be released in the fourth quarter, keeping attention and significant capital flowing into these market groups.

Increasing China–U.S. trade tensions may be responsible for part of the weakness, but this catalyst isn't showing up in the PHLX Semiconductor Index (SOX), at least not yet. Of course, we still don't know the details of President Trump's retaliation for the new Hong Kong security law, which may include the dismantling of the phase one trade deal or new disruptions in technology sharing between the superpowers.

AMD's price history features a string of feast and famine periods, with massive rallies unraveled through equally massive sell-offs. It was hoped that the 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 now begun its third month. Long-term relative strength indicators have picked up on this character shift, entering sell cycles that could persist into the third quarter.

AMD Long-Term Chart (1985 – 2020)

Long-term chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)

A 1997 breakout above 1984 resistance above $20 printed the third point in a rising trendline, triggering a reversal that dropped the stock to a two-year low in the single digits. It finally mounted the trendline in March 2000 and entered a parabolic advance that topped out at $48.50 in June. The subsequent decline crashed through the trendline before bouncing in the lower teens and reversing at the line once again in 2001. The downside finally ended at an 11-year low in 2002, ahead of an impressive recovery that reached the trendline once again in 2006.

Selling pressure into 2009 dumped the stock into the single digits, undercutting the 2002 low before a weak bounce failed at 50-month exponential moving average (EMA) resistance in 2010, 2011, and 2012. It tested the 2009 low in 2012 and 2015 before joining NVIDIA in a monstrous uptrend, driven by bitcoin mining mania. That uptick mounted the 2006 high in December 2019 and the 2000 high two months later, posting an all-time high at $59.27 on Feb. 19.

AMD Short-Term Chart (2018 – 2020)

Short-term chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)

The on-balance volume (OBV) accumulation-distribution indicator rallied to a new high with price in February and pulled back into early April, while the subsequent uptick posted an all-time high before reversing and failing the breakout. OBV then ticked lower through May, returning to the two-month low this week. The stock has also broken the short-term trendline of higher lows during this period and entered a second test at the 50-day EMA.

Thursday's low at $49.09 now marks a line in the sand between bull and bear power, with a breakdown establishing sell signals that could presage a failed breakout above the upper red line at $48.50. Buying signals at this point will need to wait for a bounce to remount the red line above $55, reinstating the bullish technical posture needed for a successful follow-through rally above the February high.

The Bottom Line

AMD stock is showing signs of technical weakness more than three months after the February breakout, warning shareholders that the rally could fail.

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