Microchip Technology Inc. (NASDAQ:MCHP) — I last reviewed MCHP on Sept. 14 and suggested that it be bought at $57 with a trading target of $64. Standard & Poor’s recently raised their 12-month target to $85, and for long-term investors, that price may be achievable. However, traders have exceeded my original target and a retreat back to the 50-day moving average appears more likely than a breakout through the bullish resistance line at about $75.
This mid-cap semiconductor company supplies micro-controllers and analog and other semiconductor products to many companies specializing in high-volume embedded control applications. The company is on a March fiscal year and reported $1.49 in FY 2016.
S&P increased their earnings estimate for FY 2017 from $3.61 to $3.76 and FY 2018 from $3.97 to $4.11. As a result, they have retained a five-star “strong buy” on MCHP. They see order improvement and view the recent completion of the Atmel acquisition as being highly accretive and boosting MCHP’s microcontroller portfolio.
S&P also projects that the company will gain share in the 8- and 16-bit and 32-bit markets. The stock pays a dividend of $1.44 providing a dividend yield of 2%.
Technically, the stock is in a bull market after breaking from a double top in May on high volume (not shown). The break followed several consolidations, all holding at the 50-day moving average (blue line), which is where I recommended the stock on Sept. 14.
A right triangle’s resistance line was broken by buyers in January, and the trend evolved into a narrow bull channel with support at the 20-day moving average (green line). The green line flattened, and late last week volume fell to below average, and the MACD indicator issued a sell signal at midweek. These technical signals suggest that a consolidation below the bull channel is likely, thus my suggestion to sell MCHP at $73.50-plus.
If MCHP falls below $70, traders should review it for a potential purchase. Now, however, this stock has achieved our goal and should be sold.
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