The Noose Tightens For Micron Tech

01/13/05 08:48:12 AM

by Arthur Hill

Micron Tech has underperformed the market over the last few months and appears on the verge of moving even lower.

Security: MU
Position: Hold

While the Nasdaq and Standard & Poor's 500 surged from mid-August to late December, Micron Technology remained in a trading range. During this period, the Nasdaq rose over 20% and the S&P 500 advanced around 14%. Conversely, MU remained range bound and has little to show for this explosive move in the broader market. The price relative, which compares the performance of MU against the S&P 500, peaked in April and has moved steadily lower over the last several months.

On the price channel, the pattern at work looks like a descending triangle. These are bearish continuation patterns that are confirmed with a support break. The lower highs show selling pressure at lower and lower levels (red arrow). The equal lows show buying pressure around 11. A move below 11 would break the bull's back and open the door to single digits.

Figure 1: Micron Tech. MU has underperformed the market over the last few months and appears on the verge of moving even lower.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

Bollinger Bands confirm that a break is imminent. These volatility-based bands contract as trading becomes relatively confined. The bands were quite wide from December to August, which represented a period of movement. However, the bands have tightened to their narrowest levels in over a year. This indicator does not have a directional bias, and the next signal depends on the direction of the break. A break above the last high (12.44) would be bullish, while a break below the last low (11) would be bearish.

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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