Is Advanced Micro Devices Headed For Gap Fill Or Will This Bearish Pattern Dominate?

Advanced Micro Devices, Inc. AMD was spiking up more than 5% higher on Friday in tandem with the S&P 500, which was surging about 2.5% higher.

On Wednesday, Morgan Stanley analyst Joseph Moore reinstated an Overweight rating on AMD with a price target of $103. The price target suggests about a 19% increase from the stock’s current share price.

Moore’s bullish view did little to boost AMD’s stock price on that day but the stock had already started to reverse into an uptrend two days prior and on Friday, AMD confirmed the trend.

An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.

The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.

Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.

Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.

A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.

In an uptrend the "trend is your friend" until it’s not and there are ways for both bullish and bearish traders to participate in the stock:

• Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
• Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low indicating a reversal into a downtrend may be in the cards.

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The Advanced Micro Devices Chart: AMD’s most recent confirmed higher low was printed on Thursday at $80.23 and the most recent high was formed at the $86.38 mark on Wednesday. On Friday, AMD surpassed the most recent high to confirm a new uptrend is intact.

• If AMD closes the trading day near its high-of-day price, the stock will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Monday. If the stock closes the day with an upper wick, AMD will print a shooting star candlestick, which could indicate lower prices are on the horizon, perhaps to print another higher low.
• There is a chance AMD is settling into a bearish head-and-shoulders pattern on the daily chart, with the left formed between May 12 and May 24, the head created between May 25 and June 16, and the right shoulder forming over the days that have followed. If this pattern becomes dominant, the measured move is about 30%, which suggests the stock could fall toward $57.
• If the uptrend continues, there is a gap above between $116.31 and $118.59 that could be more likely to be filled. Gaps on charts fill about 90% of the time, although it should be noted it could be an extended period of time before that happens.
• AMD has resistance above at $87.45 and $92.75 and support below at $84.24 and $79.70.