Key Takeaways
- Microchip Technology could remain on watchlists following a 14% decline Thursday, leading the way in a sell-off of U.S. stocks after equities rallied.
- The highest trading volume in February 2017 was used to make this week’s price changes, as investors bet on the next move by the chipmaker.
- Investors should watch important support levels on Microchip's chart around $34 and $30, while also monitoring key resistance levels near $50 and $56.
Microchip Technology (MCHP), which tumbled Thursday, could remain on watchlists. The stock led the decline in chip stocks during a post-rally selloff of U.S. equities.
Chip stocks, such as Microchip (which makes silicon used for everything from consumer electronics and automotive systems to consumer electronics), have remained volatile in the face of tariff uncertainty, which has weighed heavily upon consumer and business confidence. Both are key customers who drive chipmakers’ earnings.
Microchip shares lost about half their gains from the previous session on Thursday. They fell 14% to $35.81. Since the beginning the year, the stock’s value has fallen by around a quarter, compared with the Nasdaq Composite, which fell 15% over the same period.
Below, we analyze Microchip’s technicals and identify important price levels for investors to watch.
Price Swings Continue
The selling of Microchip shares accelerated after the 50 week moving average (MA), which crossed below the 200 week MA in early march, formed a death cross. This chart pattern signals lower prices.
Since last week, when tariffs caused a 25% sell-off of the stock, volatility has increased dramatically, with significant swings in either direction. This week’s price gyrations occurred with the highest trading volume in February 2017, as investors bet on the chipmaker’s next move.
The relative strength index confirms the bearish price momentum. However, the indicator remains oversold, which could attract short covering and buy a bounce investors.
Let’s use technical analyses to identify important support levels and resistance levels in Microchip chart.
Watch out for Important Support Levels
The first level to be on the lookout for is around $34. This area would likely attract a lot of attention near this week’s low, which also aligns closely with the December 2018 bottom. A bounce here may indicate the completion of a five-price swing Elliot Wave Pattern.
If the shares fall below this level, they could return to the psychological $30 support level. Bargain hunters could be looking to buy and hold near the October 2018, swing low, and March 2020 pandemic bottom.
Key Resistance Levels for Monitor
Investors should be on the lookout for further price increases. Tactical investors who bought at lower price points may decide that they want to lock in their profits near a line connecting the February’s low with the range of trading activity between April 2019 and Sept 2020.
Buying above this level, Microchip shares could reach around $56. This area of the chart will likely provide overhead support near multiple peaks on the chart that stretch back to early 2020.
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