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In just under a month, chip manufacturer Maxim Integrated Products (NASDAQ: MXIM) has gained 13.8%. The stock had tested support in the $30 level three times in January and February and then used that support as a springboard for the latest rally.
Unfortunately, Maxim Integrated stock is now facing resistance in two different forms – the flat-line resistance in the $35 range and the downward-sloped trend line that connects the highs over the last four months.
The daily oscillators show that the stock is in overbought territory, or at least they both were in overbought territory. We see that the daily stochastic readings made a recent bearish crossover and the 10-day RSI peaked right at the 70 level before moving lower. Both of these events have been bad news for the stock in the last nine months.
Looking at the weekly chart, we see the recent trend line and we also see the flat-line resistance at $35. The other item of note on the weekly chart is the fact that the 13-week moving average recently made a bearish crossover below the 52-week moving average.
I also want to point out the trend channel that encapsulated the trading for Maxim Integrated stock over the last 3 ½ years. We see from the dashed line that the stock has moved below the lower rail in the past and it recently moved above the upper rail. While it is easy to see the trend, seeing it break above and below the channel makes me less certain of its ability to remain as the trend. I think the recent downtrend and the resistance at the $35 level will outweigh the momentum from the trend channel.
Part of the reason for this thinking is the sentiment toward Maxim. The analyst ratings are neutral, with 13 “buy” ratings, 12 “hold” ratings and one “sell” rating, but it is the short interest ratio that worries me. The most recent reading was at 1.63 and that was at the end of January when the stock had been falling. Now that the stock has rallied over the last month, I have the feeling that the ratio is going to come down when we get the February stats.
What I see happening is that the $35 level and the downward sloped trend line keep Maxim Integrated stock below the $35 level and the stock falls back down to the $30 level. Given how the stock has found support at the $30 level in the past, I would take some profits there and then keep part of the trade open.
If the stock breaks that support, we could see a very violent move to the downside, as that price seems to be the line in the sand. A break of the $30 level could mean the stock falls all the way to $24.
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