Stock Of The Day: Will Micron Technology Reverse?

Micron Technology, Inc. (NASDAQ:MU) is our Stock of the Day because, while shares are trading lower, there appears to be some profit-taking after its recent run-up.

There is a chance that the move lower will continue. The shares are extremely overbought.

We can view markets in three trends: long-term, intermediate-term, and short-term.

There is no ‘official' definition for how long each of these trends is. It depends on the individual investor’s or trader’s perspective.

To a day trader, a long-term trend may be five hours. To a buy-and-hold investor, a long-term trend may be five years.

A short-term trend for a day trader may be 30 minutes. For a long-term investor, it could be 30 days.

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One principle of technical analysis is that the same patterns can appear across charts of different time horizons.  They have a fractal nature.

There is a reason for this.

Chart patterns are a graphical illustration of investor and trader psychology. Regardless of the time horizon of a particular strategy, the people who implement the strategy experience the same emotions, and this is what shows up in charts.

This is why the same patterns can appear on charts with different time horizons.

Shares of Micron are overbought in multiple timeframes. This is why there is a good chance the move lower continues.

People typically use the Relative Strength Index (RSI) to determine whether a stock is overbought.

If the blue line of the RSI is above the horizontal red line, it indicates overbought conditions. This can draw sellers into the market because they will be expecting a reversion or move lower. Their selling can become a self-fulfilling prophecy.

Micron Technology Chart

There are two RSI indicators on the chart below. The upper one is based on days. The lower one uses a weekly timeframe.

Image: Shutterstock