Advanced Micro Devices, Inc AMD gapped up about 2% higher on Thursday and popped up to a resistance level near $100 before running into sellers at that level.
The price action had AMD looking to print a shooting star or gravestone doji candlestick, which could indicate lower prices will come on Friday. If that happens, the uptrend will be negated and a downtrend could be on the horizon.
A downtrend pattern occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify a downtrend, with descending 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 downtrend.
Descending longer-term moving averages (such as the 200-day simple moving average) indicate a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend, the "trend is your friend" until it’s not and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock.
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The Advanced Micro Devices Chart: AMD has been trading in an uptrend since Feb. 22, making a consistent series of higher highs and higher lows. The stock’s most recent higher high was printed on March 23 at $102.43 and the most recent higher low was formed near $92.90 on Tuesday.
- Over the course of Wednesday and Thursday, AMD popped up from that level but has so far failed to form another higher high. If AMD falls on Friday, Thursday’s high-of-day will serve as a lower high to negate the uptrend.
- If that happens, bearish traders will want to see AMD drop under $92 to confirm a downtrend is in play. Bullish traders want to see the stock form a bullish reversal candlestick, such as a doji or hammer candlestick, which will form a bullish triple bottom pattern at that level.
- AMD has resistance above at $99.82 and $106.89 and support below at $92.75 and $87.45.
Photo courtesy of AMD.
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