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MU Tries To Hold Breakout

05/28/08 09:33:56 AM
by Arthur Hill

Micron Tech broke double-bottom resistance, but met resistance at the 200-day, and the breakout is getting a serious test.

Security:   MU
Position:   Hold

First, let's take a look at the double bottom and breakout. Micron (MU) established support with two equal lows in January and March. The subsequent break above the intermittent high confirmed the double bottom and projected further strength toward 10.5. The height of the pattern (8 - 5.5 = 2.5) is added to the breakout point for a target (2.5 + 8 = 10.5). See Figure 1.

FIGURE 1: MU, DAILY. Micron established support with two equal lows in January and March.
Graphic provided by: TeleChart2007.
Strong buying pressure confirms the breakout. Volume surged when MU advanced off the March low. Volume was not just a little above average, but rather way above average. The bottom indicator shows on-balance volume (OBV) breaking resistance in mid-April, a few weeks before the stock. This indicator confirms strong buying pressure to further validate the breakout.

Even though the breakout is holding and the double-bottom target is around 10.5, MU is showing some signs of weakness and could be ripe for a pullback. After all, the stock surged from 5.5 to 9 and became overbought. A pullback would certainly not be unusual. In fact, a pullback could even be welcome.

FIGURE 2: MICRON, DAILY. MU broke the March trendline with a sharp decline, the first sign of weakness.
Graphic provided by: TeleChart2007.
MU broke the March trendline with a sharp decline, and this is the first sign of weakness. A typical correction often retraces 50-62% of the prior advance. For MU, this would entail a move to the 6.8-70.2 region. Such a move would alleviate overbought conditions and improve the risk-reward ratio for long positions. See Figure 2.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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