Stock Of The Day: Micron At Risk Of Breaking Key Support

Shares of Micron Technology, Inc. MU are trading lower on Monday, and they could be about to break support.

Stocks that break support tend to trend lower. This is why Micron is our Stock of the Day.

Many people overcomplicate technical analysis. But it is simply the study of supply and demand.

If a stock is trending lower, it is because there isn't enough demand (buy orders) to absorb all of the supply (sell orders). As a result, investors and traders who wish to sell are forced to offer their shares at a discount to attract buyers.

This forces the stock into a downtrend.

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When a stock drops to a support level, the dynamic changes. There is more than enough demand to absorb all of the supply. Those who want to sell can do so without the fear of pushing the price lower.

As you can see on the chart, Micron has support at around $86.60. This level has been support since August.

Support levels can stay intact for an extended period of time due to seller's remorse. There are people who sold the stock while it was at support that regretted doing so when the price rallied soon after.

Some of them decide they made a mistake and vow to repurchase their shares if they can do so at the same price they were sold for. As a result, if the stock eventually reverses and drops back to their selling price, they place buy orders.

If there are enough of these buy orders, it will form support at the same price that had been support before.

If a stock trades and stays below the support level, traders say the support has been broken. This illustrates an important supply and demand dynamic.

This indicates that the traders and investors who established support with their buy orders have either completed their purchases or canceled their orders. In either case, they are no longer active in the market.

This could set the stage for a move lower and that may be about to happen with Micron. People who wish to sell may be forced once again to offer their shares at a discount to attract buyers.

This may force the stock into a new downtrend.

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