Will Microchip Technology's Rebound Become a Blip on the Chart?

Shares of Microchip Technology Inc. MCHP declined sharply from late May into early August. Share prices have been rebounding to the upside in recent days. The big question for traders today is whether this is a rebound to sell or to buy in the tech stock.

Let's dig into the charts and indicators for some answers.

In this daily bar chart of MCHP, below, I can see that prices gapped lower in early August. 

Prices broke down below the cresting 200-day moving average line and the declining 50-day moving average line. The 50-day line is close to crossing below the 200-day line for what many traders call a dead or death cross sell signal. 

The trading volume surged higher as prices declined in early August. The On-Balance-Volume (OBV) line started to weaken from early July telling me that sellers of MCHP were becoming more aggressive than buyers. The trend-following Moving Average Convergence Divergence (MACD) oscillator is below the zero-line but crossing to the upside for a cover-shorts buy signal.

In this weekly Japanese candlestick of MCHP, below, I can see that prices moved higher for about two years in an upward sloping channel. The uptrend line that helped define the channel was broken at the end of July and early August. Prices trade below the 40-week moving average line now. The weekly OBV line shows choppy weakness since December. The MACD oscillator has turned lower since June and is about to cross below the zero-line.

In this daily Point and Figure chart of MCHP, below, I can see that prices have reached and exceeded a downside price target in the $82 area.

In this second Point and Figure chart of MCHP, below, I used weekly price data. Here the software came up with a $76 price target, which was also reached and exceeded.

Bottom line strategy: I am inclined to view the current strength in MCHP as a rebound that is likely to fail in the short-term.

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