Shares of Micron (MU) are trading at new 2016 highs on Thursday. The memory chip maker is up over 5.5% and was the No. 3 gainer in the S&P 500 at midday.
This powerful breakout move has driven the stock well past a heavy resistance area. Investors should view the action this week as very positive.
As July began, Micron was continuing a pullback phase from its June 23 peak. After three days of heavy selling, the stock found support near its upward-sloping 50-day moving average. The next day, Micron began a powerful rally phase that pushed the stock well past the January peak and into new 2016 high ground.
By mid-September, as shares entered overbought territory, Micron's upside momentum evaporated. Over the next eight weeks, the stock remained in a narrow consolidation pattern as it rested after the 55% ramp off the July low. During this phase, the $18.20 area, which held the highs from September and October, marked a heavy resistance zone. At Wednesday's close, this area was still a roadblock.
Today's breakout move has clearly taken out the $18.20 area, ending the eight-week consolidation with an upside resolution. As this fresh rally leg begins, Micron investors should view the stock as a buy on weakness. Just above current levels is Micron's 40-week moving average just below $20.00.
A pullback from this key long-term indicator would provide patient bulls with a low-risk entry opportunity. The area between $18.50 to $18.00 is now a very solid support zone.