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CHANNEL LINES


Channel Surfing With Micron

12/08/05 07:35:21 AM
by Arthur Hill

Micron Tech is bouncing higher within a rising price channel and looks headed for the lower boundary.

Security:   MU
Position:   Hold

Buying within an uptrend is often difficult. Opportunities are fewer, pullbacks are usually short, and traders must be nimble to catch a bounce. This technique utilizes a rising price channel and oversold oscillator readings to pick entry points with a good risk-reward ratio.

Micro Technology (MU) remains in a six-month uptrend that is defined by a rising price channel. Both the upper and the lower trendlines have been touched at least three times (Figure 1). Most recently, the stock became overbought in late November after it touched the upper trendline and the relative momentum index (RMI) became overbought (>70). I would not consider this a sell signal, but it was certainly a warning to prepare for a pullback or a consolidation.

FIGURE 1: MICRON. MU remains in a six-month uptrend defined by a rising price channel.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
The stock pulled back over the last few days and it is now time to identify a support zone that might produce a reversal. The lower-channel trendline extends to around 12.8. There is also support from the October lows and broken resistance between 12.4 and 13.1. Taken together, I would look for MU to find support between 12.5 and 13.

The June and August lows coincided with oversold readings in the RMI (green ovals). It was not until RMI moved back above 30 that the corrections ended. There were shallower corrections in September and October, but I am more interested in a true oversold reading that will produce a better risk-reward ratio. I would look for MU to correct back to the 12.5-13 area AND for RMI to move below 30 before considering a long position.



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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