Micron Technology, Inc. (MU) stock is trading lower on Friday morning after the company beat fiscal second quarter EPS estimates by eight cents while revenues topped expectations by a small margin, lifting 58.2% year over year. The results and higher third quarter guidance failed to stir buying interest, which makes sense following a vertical advance that has lifted the memory giant's shares nearly 70% since the second week of February.

The rally wave has triggered extremely overbought technical readings at the same time the U.S. is engaged in a trade fight with China, exposing the semiconductor sector to retaliation that could undermine 2018 profits. President Trump's decision to block the acquisition of local chipmakers by foreign powers complicates this equation because it could speed up China's chip fab development, adding a massive low-cost competitor to the market landscape. (See also: Micron’s Soaring Stock Faces Wild Swings Ahead.)

MU Long-Term Chart (1999 – 2018)

A mild uptrend went vertical at the height of the internet-fueled bull market in early 2000, lifting to an all-time high at $97.50 and then crashing when the bubble burst, losing nearly 70 points in three months before finding support in the mid-$30s. The stock price broke that level following the Sept. 11 attacks, descending to a nine-year low at $6.60 in February 2003, more than four months after the bear market ended.

The stock underperformed badly through the mid-decade bull market, stalling well below .382 Fibonacci bear market retracement level in the first quarter of 2004. It fell into the single digits once again in 2005, bouncing at $9.32 and turning higher into a 2006 breakout above the 2004 high. That rally failed to attract momentum buying interest, stalling in the upper teens while marking the highest high for the next seven years.

A steep decline to a 16-year low ended the multi-year decline in late 2008, giving way to narrow mixed action into 2013, when the stock broke out in a strong uptrend. The rally topped out in the mid-$30s in 2014, while the subsequent pullback relinquished the majority of gains into the 2016 low. Aggressive buyers then took control, completing a historic breakout that reached harmonic resistance at the .618 Fibonacci retracement of the post-bubble downtrend earlier this month.

[Learn more about using Fibonacci retracements to analyze charts in Chapter 6 of the Technical Analysis course on the Investopedia Academy]

MU Short-Term Chart (2016 – 2018)

The decline into January 2016 ended in the high-single digits, while a four-month basing pattern at that level triggered a major rebirth of buying interest, with the uptrend into 2018 carving an Elliott five-wave advance. This pattern often generates a nearly parabolic fifth and final wave, matching Micron's price action since February 2018. However, this climax often generates an equally ferocious counter wave that can end long-term uptrends.

A pullback to test breakout support around the 2017 high at $50 would also fill the March 6 gap and reach the 50-day exponential moving average (EMA), suggesting a downside target about 18 points below this morning's opening print. However, that's just speculative at this point, because short-term price action can withstand a decline down to $55 without setting off longer-term sell signals. Even so, the $50 level looks like the bullish line in the sand if the negative side of the Elliott pattern plays out.

On-balance volume (OBV) has matched price action so far this decade, posting a new high in 2014 and entering a major distribution wave that held well above the prior low into 2016. It broke out with price in September 2017 and has gone straight up into 2018, matching the parabolic rally's bullish fervor. There's plenty of room for profit taking in this scenario before bears have an opportunity to wrest control of the ticker tape. (For more, see: Micron Reports Earnings Against Its All-Time High.)

The Bottom Line

Micron Technology stock may have completed an Elliott five-wave advance that ends the long-term uptrend, but bulls will remain in charge as long as the price holds above breakout support near $50. (For additional reading, check out: Chip Stocks at Record Highs Still a Bargain.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>