Microchip Technology ( MCHP) is rallying Tuesday on the heels of an earnings and revenue beat by the company that provides smart, connected and secure embedded control solutions.
Let's check out the charts and indicators.
In the daily bar chart of MCHP, below, we can see some "interesting" clues. Prices have traded sideways the past 12 months and have bounced off the $64 level since July. Prices are bouncing upwards today but that strength may not be long sustained. MCHP is trading below the declining 50-day moving average line and below the declining 200-day line.
The trading volume has increased since January when prices turned down from its late December zenith. The On-Balance-Volume (OBV) line began to weaken in November and started a new "leg" lower in late March telling us that sellers of MCHP are more aggressive than buyers.
The Moving Average Convergence Divergence (MACD) oscillator made a higher low in April/May than in February and that is a bullish divergence when compared to the price action which has made lower lows from February to late March. This bullish divergence may be strong enough to generate a rally in the weeks ahead.
In the weekly Japanese candlestick chart of MCHP, below, we see a picture that is many ways "just hanging on." The shares look like they have made a large top pattern the past two years with a "neckline" at $64. A weekly close below $64 will likely precipitate further declines. Prices trade below the declining 40-week moving average line.
The weekly OBV line has been stalled the past year and the MACD oscillator is bearish.
In this daily Point and Figure chart of MCHP, below, we can see a potential upside price target of $80 but a trade at $71 or higher may be needed to get this potential bounce going.
In this second Point and Figure chart of MCHP, below, we used weekly price data. Here the chart suggests a downside price target in the $48 area.
Bottom-line strategy: In the short-term we might see MCHP rally to the $80 area but looking out further our weekly Point and Figure chart suggests we could see a decline to the $48 area. For me the big risk is a weekly close below $64.
