Advanced Micro Devices stock analysis: a key reversal pattern signals weakness

The Advanced Micro Devices share price analysis shows the stock is forming a head and shoulders pattern and could correct in the next few days

A large part of the population across the globe has been forced to work from home due to the coronavirus pandemic. This has resulted in huge demand for notebooks and desktops. Although Intel is still the leader in the central processor chip market, Advanced Micro Devices (NASDAQ: AMD) has been slowly eating away at its market share.

According to Statista, AMD has more than doubled its share of the global x86 CPU market from 18.1% in the first quarter of 2017 to 39.4% in the corresponding quarter in 2021. During that period, Intel’s market share has dropped from 81.9% to 60.6%.

This growth has translated into strong earnings for AMD in Q1 2021, handily beating consensus estimates. The company reported revenues of $3.45 billion and earnings of 52 cents a share, surpassing estimates of $3.21 billion in revenue and 44 cents per share in earnings. The revenue growth projections for the full year have been bumped from the earlier guidance of 37% to 50% over 2020.

With strong earnings visibility for this year, will Advanced Micro Devices stock go up? 

Advanced Micro Devices share price technical analysis – weekly chart

The Advanced Micro Devices share price has been in a steady uptrend for the past few months. The stock rallied from the March 2020 low of $36.74 to an all-time high at $99.82 in January, a 171% rally within a year.

However, the price action of the past few weeks is showing signs of forming a head and shoulders pattern. This setup will complete on a breakout and close below $72.48. If that happens, the stock could start a downtrend with a pattern target of $45.14,

The flattening 20-day EMA and the relative strength index (RSI) near the midpoint suggest a balance between supply and demand. A bounce off the $72.48 support could keep the pair range-bound for a few more days.

Contrary to this assumption, if the stock turns up from the current level and rises above $100, it will invalidate the bearish setup. Such a move could trap several aggressive bears, resulting in a short squeeze. That could propel the price to $127.16.

The Advanced Micro Devices stock price analysis of the weekly chart shows the bullish momentum has weakened and a reversal pattern is forming. Let’s do the AMD stock analysis of the daily chart to see if the short-term trend is also negative. 

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Advanced Micro Devices share price technical analysis – daily chart

The stock broke out of the overhead resistance at $84.63 on 26 April, which completed a bullish ascending triangle pattern. This setup had a target objective of $94.51. 

However, the stock turned down from $89.69 on 28 April and plunged below the breakout level at $84.63 on 29 April. This shows that traders are booking profits and the supply exceeds demand.

The bulls are currently trying to defend the 20-day EMA. If they succeed and the price rebounds above $84.63, a retest of $89.69 will be on the cards. A breakout and close above this resistance could resume the up-move. The stock could then rally to $94.1 and then to $100.

Conversely, if the price plummets below the moving averages, a drop to the trendline of the triangle is possible. A break below this support could pull the price down to $74.74.   

Advanced Micro Devices stock: buy or sell at these levels?

The Advanced Micro Devices share price analysis shows uncertainty as higher levels are attracting selling. Therefore, traders may consider buying after the bulls push the price above $90 and reassert their supremacy.

Another possibility to buy would be on a strong rebound off $72.48 with the stops placed at $70. That will confirm accumulation at lower levels and give a good risk to reward ratio.

Trade Advanced Micro Devices stock – Advanced Micro Devices share price

Advanced Micro Devices Inc
Daily change
74.86
Low: 73.96
High: 76.92

FURTHER READING: NVIDIA stock analysis: watch out, a bull trap may be forming

FURTHER READING: NIO Limited stock analysis: could the stock’s performance leave Tesla in the dust?

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