Micron Stock Approaching a Must-Watch Technical Price Level

Micron stockMU Stock: Turbulence Expected

Micron Technology, Inc. (NASDAQ:MU) stock has staged an epic run since shares marked a low at $9.35 on May 12, 2016. Since that fateful day, MU stock is up an incredible 163% and, although there is little to suggest that this performance in Micron stock will end anytime soon, there is an indication that some turbulence is on the horizon.

I like Micron stock a for a number of reasons, and all these reasons have one thing in common. It has to do with MU stock’s ability to adhere to rules set out by technical analysis. For those not familiar with technical analysis, this is a form of investment analysis that relies on historical price and volume data to discern trends and forecast future prices.

This epic run in Micron stock began when a technical pattern suggested that a new bullish trend had begun.

The following stock chart illustrates the pattern that first suggested that a bottom had formed.

mu stock1

Chart courtesy of StockCharts.com

The Micron stock chart illustrates a technical pattern known as a “double bottom,” which formed in the first six months of 2016.

A double bottom is a trend reversal pattern that develops at the conclusion of a downtrend. The pattern is marked by two consecutive lows that are separated by a peak in between. The double bottom is confirmed when shares close above the peak that separates the two bottoms.

A completed double bottom suggested that the bearish trend that drove Micron stock lower had concluded and that a new bullish trend had begun. This pattern marked the exact low, and reinforces the notion that MU stock adheres to the rules set out by technical analysis.

The following stock chart illustrates the orderly price action that followed the trend reversal pattern.

mu stock

Chart courtesy of StockCharts.com

The price action that followed the double bottom trend-reversal price pattern has been nothing short of spectacular.

Shortly after the double bottom was generated, a bullish indicator known as a “golden cross” was generated. A golden cross is a bullish indicator that is produced when the 50-day moving average, highlighted in blue, crosses above the 200-day moving average, highlighted in red. Traders use this indicator to confirm the notion that a bull market is underway.

This bull market in Micron stock, which was confirmed by the golden cross, is defined by a clear and concise pattern that traders refer to as an “ascending channel.” An ascending channel contains two parallel upward-sloping trend lines. One trend line represents support and the other trend line represents resistance. These trend lines have effectively contained the price of MU stock as it continues to advance within this trend.

As long as MU stock stays within the confines of the ascending channel, then it is presumed that the trend toward higher prices is set to continue.

The following Micron stock chart illustrates that a level of resistance, eyed by traders, is now fast approaching.

mu stock2

Chart courtesy of StockCharts.com

The Fibonacci retracement numbers are a tool used by traders to identify counter-trend price objectives. The theory behind these numbers is that, once a primary move is complete, the price will retrace approximately 50%–62% of the move before the primary trend reasserts itself. This tool is so popular among the trading community that it has dubbed this retracement as trading into “the box.”

Micron stock has now entered the box and, although there are no indications that the rally in MU stock will abort anytime soon, it is worth noting that resistance does exist at this level, and some volatility can now be expected. This volatility will be subject to traders exiting long positions and possibly assuming short positions as the box is tested.

If a reversal is going to occur in Micron stock, then the odds are that it will happen after this level of resistance is tested.

Bottom Line on Micron Stock

Micron stock abides by rules set out by technical analysis. These rules suggest that, although the bullish trend remains intact and higher prices are the likely scenario, a key level of resistance is fast approaching, and some caution is warranted in MU stock at this level.