The Calm Before The Storm In AMD

12/07/06 09:37:13 AM

by Arthur Hill

Trading in AMD has turned ever so boring as a tight trading range evolves. Look for a break above this range for the next signal.

Security: AMD
Position: Hold

On the price chart (Figure 1), Advanced Micro Devices (AMD) gapped down in October and found support around 20. The stock firmed two days after the gap and then traded flat over the next six weeks. In fact, the pattern from late October to late November looks like a rising flag and the stock broke the lower flag trendline with a sharp decline on December 1. This break did not last long, and AMD quickly moved back above 21 the last three days. With the October gap and the December 1st drop, the bears have the edge in this stock. A move below the October low at 20 would signal a continuation lower and target a move toward the July low.

FIGURE 1: ADVANCED MICRO DEVICES, DAILY. AMD gapped down in October before finally finding support at around 20.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

The Bollinger Bands are overlaid on the price chart, and these show contracting volatility over the last few weeks. The distance between the upper band and the lower band contracted to its narrowest level in months. This reflects the tight range and dull trading over the last few weeks. Such volatility contractions are usually followed by volatility expansions, but Bollinger Bands do not give directional clues. For direction, I would look to the range and turn bullish on a break above the consolidation high (22.33) or turn bearish on a break below the October low (20).

FIGURE 2: ADVANCED MICRO DEVICES, DAILY. The MACD histogram was slightly positive in November and barely positive in December.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

The moving average convergence/divergence (MACD) also reflects flat trading as momentum slows to a crawl. The MACD histogram, which measures the distance of MACD to its signal line, was slightly positive in November and barely positive in December (Figure 2). The MACD remains above its signal line, and this is positive for momentum. A move below the signal line (the negative MACD histogram) would show a downturn in momentum, and this would be bearish for AMD.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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The Calm Before The Storm In AMD

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