Shares of Microchip Technology Incorporated (MCHP), the worldwide semiconductor manufacturer, are on the verge of a significant breakout. The stuck is stuck in a classic wedge pattern. In a wedge pattern, there is a declining resistance level (in red) and rising support level (in green) that are converging.
Wedge formations are known for being reversal patterns. Since Microchip Technology stock has climbed strongly in recent years, as noted by the lower point on the left side of the chart, a reversal would mean a breakout to the downside.
At some point along this convergence, a breakout is guaranteed. It can go all the way to the very end of the trendlines converging, which would be out in 2020.
However, Microchip Technology is set to release its third quarter earnings report next Tuesday. Earnings are a critical time for any stock but more so for stocks stuck in consolidation patterns like this. It is likely going to tip the scales above or below the key levels on the chart.
In terms of the height of this wedge pattern at more than $40 per share, we probably won't see that large of a jump on earnings. But the breakout will likely signal the start of a nearly 40% move in the stock.
The Bottom Line
Microchip Technology stock is set to climb or drop by 40% in the coming months. A breakout from its current wedge pattern will tell us which direction this move will take place. Earnings next week should jump start the move.