Yesterday we wrote about Nvidia, today we focus on one of their main competitors, AMD. Nvidia just broke out of a well established flat base, and AMD stock is well set up for a potential breakout of its own. There is so much to talk about with AMD stock right now. We have 3 different chart patterns that have formed all in the last year.
For this stock of the day, we are going to explain all 3 patterns, even though the first 2 long passed their breakouts. This will hopefully help viewers see a few more patterns to practice.
Pattern 1 – Cup and Handle
The first pattern we see is a standard cup and handle. This is the most common and recognizable of patterns. At the beginning of the pattern, AMD hit a new high of $59.17 before the stock fell in price around March 2020 (when COVID-19 was first impacting the markets worldwide).
AMD stock eventually fell to a low of $36.75 before heading back up, then having some fairly flat consolidation. The handle you see here goes on for awhile before finally breaking out on 7/22/2020. Usually you will see a handle dip downwards, then on the breakout day it will break out passed the buy point. In this case, the handle originally had this pullback, but the breakout through the buy point did not happen until several months later.
This illustrates and teaches patience in your trades. Sometimes patterns can take a long time to come to fruition. To be successful in these strategies requires patience to see the stock through and follow the pattern with a keen eye. We see this pay off when AMD stock breaks through the $59.27 buy point on 7/22/2020. The breakout is on heavy volume and runs up to $86.98, a 52% increase in just 2 weeks before showing the next set of resistance.
Pattern 2 – Double Bottom Base
To begin the pattern, AMD stock hit a new high of $94.28 on 9/2/2020 before pulling back and dropping over the next 3 weeks to a low of $73.88. This low was still well above the original buy point of the previous cup and handle.
The stock then rallied up to $88.72 but did not pass the last high of $94.28. The importance of this middle rally, which you will see in the middle of the “W” pattern, is that the high was in the upper half of the “W” pattern. The best double bottom patterns will have the middle peak of the W in the upper half of the chart. This also signals the buy point for later in the pattern, 10 cents above at $88.82.
After the middle peak of the “W” pattern, the stock falls back down and the bottom dip reaches to a low of $73.76. This second dip is lower than the first dip’s low of $73.88 mentioned earlier.
This is another significant event as the best double bottom bases will have their second dip lower than the first. This shakes out any investors still holding from the first ride and afraid it will drop further. After this point, the remaining investors holding the stock are there for the long term, or they are new shareholders holding at better prices. In either case, they are more likely to stay in without selling.
As AMD stock climbs back up on the right side of the “W”, eventually it makes its way back up to the peak price from the middle W, $88.72. The stock climbs passed the buy point of $88.82 on 11/30/2020 on greater than average daily volume, to a new high of $95 per share, a modest 7% gain.
Current Pattern (3) – Set up for Bullish Flag
After two successful breakouts in 2020, shareholders began taking a long breather in December 2020 and continue to today. The final pattern we see is called a bullish flag. This flag is bullish when it points downwards on its right side, or is completely sideways. In AMD’s case, we see lower highs, and lower lows, as traders sell and buy the stock.
The bullishness of this flag comes IF the stock is able to break out above the top resistance line of the flag. Often times, through this pattern the stock price gradually gets lower to a point where institutional investors believe it is again a good buy. At that point, large volume buys occur and the stock breaks out of the top of the flag.
The flag pattern, along with the pennant pattern, need to be watched carefully. It is not recommended to try to get in early before a breakout. If the stock breaks down through the bottom support line instead, the share price is headed for bearish territory and will likely incur further losses.
The action point here will be to monitor the pattern and hope for a breakout through the top line with heavy volume. After each successful breakout, a stock may become less likely to have a successful breakout to greater highs again. Keep this in mind when thinking about AMD stock.
As always, Stock Tavern is not suggesting you buy or sell this stock, and this analysis should not be taken as financial advice. Always do your research and make your own decisions, we all have different risk profiles and therefore no trade is right for everyone.
Disclosure: I have no current position in AMD stock.