Shares of Micron Technology Inc. (MU) is trading lower Wednesday morning ahead of the N.Y. opening. The memory chip company filed to sell around $1 billion in common stock. This may be a good example of Economics 101: When you increase the supply of something when demand remains the same, what do you expect to happen to price?
Let's take a look at the charts and indicators to see if we should adjust our thinking. We last reviewed MU at the end of September and our advice was, "Until I get a new price target from the Point and Figure chart I would suggest you just raise your the sell-stop to a close below $33."
In this daily bar chart (not updated with the premarket trading), above, we can see that prices have raced higher since its August nadir. Prices are well above the rising 50-day moving average line and the slower-to-react 200-day line. Volume has risen with the advance the past six weeks or so, which is something chart watchers like to see -- higher prices being confirmed with higher volume.
The daily On-Balance-Volume (OBV) line has been climbing the past 12 months but it has picked up the pace since July signaling more aggressive buying. The 12-day momentum study in the lower panel shows increasing momentum peaks so we do not have a bearish divergence to lose sleep over.
In this weekly bar chart of MU, above, we can see that prices are above the rising 40-week moving average line. Prices stalled around $32 for about two months so this is likely to be the best or most significant support area as prices pull back. The weekly OBV line made a new high for the move up in the past month confirming the price gains.
The trend-following Moving Average Convergence Divergence (MACD) oscillator is pointed up in a bullish mode.
In this Point and Figure chart of MU, above, we can see a pretty extended move to the upside since August (look for the "8" on the chart). A $37.44 price target has been exceeded. The volume at price data on the left side of this chart shows action in the $40.18 to $39.00 area and this might become nearby support.
Bottom line: MU has been a strong performer over the past 12 months and without a pattern of distribution before the fundamental news today I would suspect that any downward price reaction may not last long and may not travel far. Nevertheless, aggressive traders long MU from lower levels might consider raising their stop protection to $35 from a close below $33.