by Serge Berger | December 19, 2013 11:08 am
On Wednesday, shares of Idaho-based chip manufacturer Micron Technology (MU) took a beating to the tune of 4.8%, causing the first technical weakness on the stock’s chart since October.
The selling came following reports that a major competitor will build a new factory in South Korea. South Korean company SK Hynix, the world’s second-largest memory chip maker, is planning to invest $3.8 billion in 2014 because of the growing demand for mobile devices. According to reports, construction on the factory is scheduled to begin in 2014, with plans to be operational by 2015.
Investors’ reaction to the news was negative as Micron Technology, which has more than a 25% share in the market, could stand to lose market share as a result of the planned expansion of SK Hynix. Analysts, on the other hand, quickly came out defending Micron’s stock price, with some calling the pullback a buying opportunity.
On the multi-year logarithmic chart with weekly bars, MU stock’s, late-2008 lows are long past as the stock rocketed higher into an early 2011 top. After developing an important higher low late 2011, MU stock staged the next leg of its rally, and in November of this year finally overcame a major multi-year resistance line in place since late 2002.
From this point of view, MU stock is constructively positioned for even higher levels over the coming years.
On the daily chart, the Wednesday tumble for MU stock kept all trend lines intact, and had its intraday low at the late-October up-trend (yellow line). As a next reference point below, in case of further weakness, is the October 2012 up-trend (black line), which currently coincides with its 50-day simple moving average, around the $19.30 area.
While Wednesday’s news-driven selling was enough to sit up and take notice, a more meaningful warning sign wouldn’t occur until a break of this longer-dated line takes place. Until such time, MU stock remains constructively positioned on the daily and longer time frames.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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