Chip Stock Sounds Buy Signal After Key Trendline Test

The trendline coincides with MRVL stock's near-term floor, too

Aug 27, 2018 at 11:37 AM
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Marvell Technology Group Ltd. (NASDAQ:MRVL) is trading up 0.8% today at $20.66, even after Cowen and Company cut its price target to $26 from $29 -- though this still represents expected upside of 26% to current trading levels. Today's positive price action just extends MRVL stock's recent bounce off a key technical level, and history suggests there could be more fuel left in the tank.

Taking a closer look at the charts, MRVL shares more than tripled in value from their January 2016 low of $7.40 to their mid-March 11-year peak of $25.18. Since then, the stock has been chopping between support near $19.50-$20.00 -- a 61.8% Fibonacci retracement of its rally from last August through November -- and resistance just below $23, and recently bounced off the lower end of this range.

mrvl stock daily chart on aug 27

More significantly, this recent floor is also home to MRLV stock's rising 320-day moving average, which has had bullish implications in the past. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the two other times since 2015 that Marvell Technology has pulled back to within one standard deviation of this trendline after a lengthy stretch above it, the shares have averaged a one-month gain of 10.8%, and were positive both times. Another move of this magnitude would put the equity back near its recent highs.

Those wanting to bet on a repeat of history for Marvell Technology stock may want to consider doing so with options, which offer several advantages over buying stocks -- including low cost of entry. What's more, MRVL's Schaeffer's Volatility Index (SVI) of 37% ranks in the 19th annual percentile, meaning short-term options are pricing in lower-than-usual volatility expectations at the moment, a boon to potential premium buyers.

 

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