The American manufacturer of microcontroller, mixed-signal, analog and Flash-IP integrated circuits, Microchip Technology Inc. (NASDAQ: MCHP) seems to be ready for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern breakout: The daily chart of MCHP shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts as a good support level.
Daily Chart – MCHP
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently gaining control.
#3 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a bullish bias.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
This indicates possible bullishness.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has started rising from below both (+DI) and (-DI).
#6 IH&S Breakout: As you can see from the weekly chart, the stock has broken out of an Inverted Head and Shoulders (IH&S) pattern. This IH&S pattern is marked in the chart in orange color. An IH&S pattern is a strong bullish pattern and a breakout from this pattern indicates that the stock may move higher in the short term.
Weekly Chart – MCHP
#7 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for MCHP is if the stock corrects to the breakout level of around $100.
However, for those with a higher risk appetite, you can purchase half the intended quantity of shares of MCHP if it trades above yesterday’s close, at around $107.65.
TP: Our target prices are $120 and $130 in the next 3-6 months.
SL: To limit risk, place a stop loss at $93.70 (for entry near $100) and $99.20 (for entry near $107.65). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 11% to 30% in the next 3-6 months.
- Entry near $100: For a risk of $6.30, the target rewards are $20.00 and $30.00. This is a nearly 1:3 and 1:5 risk-reward trade.
- Entry near $107.65: For a risk of $8.45, the target rewards are $12.35 and $22.35. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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