The semiconductor name nabbed a fresh multi-year high last Tuesday
Advanced Micro Devices, Inc. (NASDAQ:AMD) has had a meteoric rise in 2018, and last Tuesday broke through the $20 level to notch an 11-year high of $20.28. Our data suggests the chip stock has room to run even higher in the weeks ahead, as this recent share price high occurred simultaneously with a low-volatility signal -- a combination that's had historically bullish implications for AMD.
Specifically, the equity's Schaeffer's Volatility Index (SVI) -- a measure of front-month, at-the-money implied volatility (ATM IV) -- currently stands at just 42%. This SVI arrives in the 13th percentile of its annual range, indicating that speculative players have priced in lower volatility expectations for AMD stock options just 13% of the time in the past year.
This combination of a high stock price and low IV has yielded bullish returns for AMD in the past, according to Schaeffer's Senior Quantitative Analyst Rocky White. Since 2008, there have been four occasions where AMD was trading within 2% of its annual high while its SVI was simultaneously in the 20th annual percentile or lower. Following those signals, the security was up 9.37% one month later, on average, with 75% of those returns positive. From AMD's current price of $19.47, a move of similar magnitude would put the chip stock around $21.29 this time next month.
Looking at the charts, AMD stock has more than doubled from its April 2018 lows near $9. Since a late-April bull gap, the shares have been guided higher by their ascending 40-day moving average. Plus, the security is currently on track for its fifth consecutive monthly gain.
Despite a recent Goldman Sachs upgrade, there is ample room for more bullish notes. Of the 20 brokerages covering AMD, 10 still rate the shares a "hold" or "strong sell." In addition, its average 12-month price target of $18.28 represents a discount to the stock's current price. Any upgrades or price-target hikes from this group could give AMD's rally an extra boost in the short term.
Short covering could also be a boon. Short interest accounts for more than 20% of AMD's float, even as the equity remains within striking distance of its new multi-year high. Going forward, the unwinding of these bearish bets could fuel more upside for the chip stock.