Technical analysis shows this stock will lose half its value within 18 months
America’s leading manufacturer of memory semiconductors. (NASDAQ:) was the latest chipmaker to warn shareholders that demand is weakening at an alarming rate and revenue will not match forecasts.
Traders seemed more receptive to the dire outlook than previous chipmakers who painted a similar picture. MU opened yesterday down 4%, extended the sell up to 6% and ended with a loss of 3.74%.
AMD recently pointed out that PC demand is down, which will negatively impact the company’s revenue.
BMO Capital Markets analyst Ambrish Srivastava wrote to clients that “aside from inventory adjustments in the PC smartphone market, which has weakened further, Micron is experiencing inventory adjustments and lower demand in other end markets ranging from the cloud to automobiles. We haven’t heard from any chip company on that last point.”
Now the graph.
The balance of supply and demand has completed an ascending wedge, a pattern that turns against the prevailing trend, a bull trap. The momentum dominating the ascending range is avid appetite for the stock. However, since prices would not rise in proportion to the hunger of the bulls – as can be seen by the flatter upper line of the wedge – buyers got tired.
Note that trading provided a break to the downside ahead of the earnings release. This move may be surprising when traders tend to wait for a vital release. Therefore, I suspect ‘informed money’; is in play. Either way, the headlong rush demonstrates that buyers frustrated with the lack of upward mobility have given up, paving the way for sellers seeking buyers at lower prices. This move should put the stock in a technical chain reaction that should push the price at least to the low of the June 30 pattern.
If this happens…
…the stock will have confirmed a massive double top between November 2020 and May 2022. Its implied target is $35, assuming all interest rolled up in the setup will unwind on the downside. Therefore, the minimum is derived from measuring the height of the configuration at its lowest point.
Additionally, we now understand why the wedge may have formed, as buyers bought the upward trendline bounce off the May 2016 low. We can also appreciate the symmetrical beauty of the supply balance and demand. The $65 level that has been resistant since 2018 then turned into a neck line for the double top, and finally, resistance again for the rising wedge. We have already mentioned how the wedge is at the long term uptrend line on the lower side of the wedge. Finally, the implied target of $35 coincides with the 2018-2020 lows.
- Conservative traders should wait for price to trigger a move back to confirm coin integrity before engaging in a short position.
- Moderate Traders would wait for a corrective rally to reduce exposure by getting a better entry.
- Aggressive traders can go short at will, provided they can absorb potential follow-up whirlwinds as traders unwind and even reverse positions, as they do after a breakout.
Example of an aggressive short position
- Admission: $60
- Stop-Loss: $62.50
- Risk: $2.50
- Target: 50
- Reward: $10
- Risk-reward ratio: 1:4
Moderate short position
- Admission: $62.50
- Stop-Loss: $65.00
- Risk: $2.50
- Target: 55.00
- Reward: $7.50
- Risk-reward ratio: 1:3
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