Microvision's Stock Plummets Following Q3 Print: Why Traders May Be Laser Focused On This Pattern

Microvision, Inc MVIS plummeted 20% lower at one point on Friday in reaction to its third-quarter earnings print. The company reported earnings per share of $(0.06) on sales of $718,000, which missed the consensus estimate of $820,000.

The laser scanning technology company has been popular among retail traders due to its underlying statistics, which make it a good short squeeze candidate. Microvision has 30.86 million shares, meaning 18.94%, of its 162.65 million share float held short. The number has increased from 27.83 million in September.

The huge drop in Microvision on Friday didn’t break it from a potentially bullish pattern the stock has been trading in since Sept. 3, however, which gives technical traders clear direction on where Microvision may be heading.

See Also: 30 Stocks Moving in Friday's Pre-Market Session

The Microvision Chart: Microvision dropped to the bottom descending trendline of a falling channel and hit a support level at the $6.85 level. Within the descending channel, the stock has made a consistent series of lower highs and lower lows.

The falling channel is considered bearish and traders who believe the stock is likely to remain within the parallel lines of the channel can execute trades as the price bounces up and down from the upper and lower trendlines of the pattern. Stocks often break up bullishly from this pattern, however, and bullish traders may choose to enter a position when the stock breaches the upper trendline of the channel.

By late morning, Microvision was attempting to print a doji candlestick, which indicates a reversal to the upside may be in the cards. Monday’s candlestick will need to print in order for confirmation the pattern was recognized.

There is now a gap above on Microvision’s chart, between $7.57 and $8.20. Gaps on charts fill about 90% of the time, so it's likely the stock will trade up into the range in the future.

Microvision’s relative strength index (RSI) also suggests the stock may be in for at least a bounce. On Friday, Microvision’s RSI was measuring in at about 69%, which can be a buy signal for technical traders because it indicates the stock is currently oversold.

The stock is trading well below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. Microvision is also trading extended below the 50-day simple moving average, which indicates longer-term sentiment is bearish.

• Bulls want to see big bullish volume come in and pop Microvision up into the gap and then toward the upper trendline of the channel. If Microvision can bust through the upper trendline bulls will want to watch for big bullish volume to enter on the break. There is resistance above at $8.18 and $9.66.
• Bears want to see big bearish volume drop Microvision down below the lower support level and through the bottom of the falling channel pattern. The stock has support below the levels at $5.07 and $3.45.