Traders of Micron Technology, Inc. (NASDAQ: MU) have been taken on quite a wild ride in the past few years. In a two-year span from late 2012 to late 2014, the stock was one of the hottest trades in the market, surging from around $5 to as high as $36. However, since the 2014 peak, Micron is now down more than 74% and in danger of dropping back into the single digits.
A pattern that has been developing in Micron’s chart in 2016 indicates that the stock’s next big move could be coming really soon. Here’s a closer look at the pattern and what it means for Micron traders.
Since the beginning of 2016 Micron’s stock has been making a series of lower highs and higher lows. As a result, the stock has been trading in a narrower and narrower trading range without making significant progress up or down. This type of trading pattern (seen in the chart below) is called a triangle.
While the triangle itself is neither bullish nor bearish, it is an important pattern because a breakout from the formation can be the earliest indication for traders of the stock’s next big move.
Micron’s triangle now has the stock pinched in a very narrow range between around $10 and $11. A breakout above $11 would be bullish for Micron, but a dip below $10 at this point would be a bad sign of things to come. Since the pattern is more than three months in the making, the breakout could be a violent one.
If Micron breaks out to the downside, it will be bad news for bulls. The first line of support is the 2016 low of $9.31, but bearish triangle breakouts typically result in new lows below the level of the triangle. Since $9.31 is the stock’s multi-year low, a breakdown below $10 could push the stock to the $5 level that served as strong support throughout most of 2011 and 2012.
A breakout above $11 would first face short-term resistance at the 2016 high of $12.29. Beyond that, the late-2014 support level around $14 would be the next possible resistance level. Unfortunately for bulls, the stock faces many more resistance levels above than it does support levels below.
After trading in an increasingly tighter range throughout 2016, Micron’s stock now looks like a very tightly-coiled spring from a technical analysis standpoint. Traders that are watching for a triangle breakout one direction or the other could end up catching the most possible upside or avoiding a significantly lower new downward leg for Micron in the near future.
Disclosure: the author has no position in the stocks mentioned.
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