AMD Stock Is Going Parabolic

Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has been on an epic run since it bottomed in 2015, and there are some signs that this run is going to gain even more steam. In the traders’ universe, we refer to this type of price action as “going parabolic.”

There are number of indicators that continue to suggest higher prices, but the standout that supports a parabolic run is that AMD stock has surpassed a previous price objective with much velocity.

In my previous publication on AMD stock, titled “Advanced Micro Devices, Inc.: AMD Stock Obtains Bullish Target,” I outlined that the price objective set out by the constructive pattern had been obtained, and I explained that my strategy dictates that stepping aside is a disciplined decision to make. This was one of the rare circumstance in which discipline has been proven to be ill-advised.

I use price charts to generate my investment views using technical analysis. The technical analysis method of analyzing an investment uses historical price and volume data as indicators. These indicators, which I refer to as “tells,” are used to discern trends and forecast future prices.




The following stock chart illustrates the first tell, which suggested that a bullish view on AMD was warranted.

Chart courtesy of StockCharts.com

The Advanced Micro Devices stock chart above illustrates how a simple downtrend line, created by connecting the peaks on the price chart, defined the bearish landscape in stock. This trend line contained the price of AMD stock for a decade.

It was not until April 2016 that Advanced Micro Devices stock was finally able to rise above this downtrend line, which changed this bearish landscape forever. The infamous bear market had finally been slayed.

The following Advanced Micro Devices stock chart illustrates the tell that suggested the $11.84 price objective.

Chart courtesy of StockCharts.com

The AMD stock chart above illustrates that healthy price advances are created with constructive price action. Constructive price action consists of impulse waves, which advance the price, and consolidation waves, which alleviate any overbought conditions and set up the next impulse wave.

Aside from discerning the trend, this wave structure is also responsible for producing a potential price objective. The method for producing a price objective has to do with the theory behind impulse waves that are separated by a consolidation wave. The theory states that these impulse waves tend to mirror each other in length, and this is how the $11.84 price objective was produced.

The moving average convergence/divergence (MACD) indicator in the lower panel of the above chart has been excellent at confirming the next move in AMD stock. The MACD indicator is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum signals.

A bullish signal confirmed the breakout of the consolidation wave, and the current impulse wave is still advancing while this signal remains bullish.

AMD stock has surpassed the $11.84 price objective, and the following Advanced Micro Devices stock chart illustrates the next potential price objective.

Chart courtesy of StockCharts.com

The AMD stock chart above uses the same theory surrounding impulse waves, with one exception. Instead of mirroring the impulse waves using length in dollars, I used length in performance. The same principles apply, but this method is the best choice when a parabolic run is potentially in play.

The same midpoint applies, but when using performance to mirror the initial impulse wave, a price objective of $24.50 is created. This price objective is the next theoretical level that Advanced Micro Devices is targeting. The nature of parabolic runs eventually lead to a substantial sell-off so, as a result, I would use appropriate risk management techniques to manage this position.

Bottom Line on AMD Stock

Advanced Micro Devices continues to defy gravity, and the epic run that began early last year shows no sign of abating. I believe that higher AMD stock prices are likely, because the indicators and price action generated on the stock chart support this notion. Due to the nature of parabolic runs, I always stress the use of appropriate risk management techniques.