Micron Stock in Rally Mode Despite Mixed Quarter

Micron Technology, Inc. (MU) stock is trading higher by nearly 5% on Wednesday morning after the company posted profits of $0.45 per share, beating second quarter 2020 estimates by a wide margin. Revenues at $4.8 billion came up short, but shareholders were encouraged by third quarter 2020 revenue guidance between $4.6 billion and $5.2 billion, compared to a $4.88 billion consensus. The company also presented a broad range for third quarter profits, now expecting earnings per share (EPS) between $0.40 and $0.70.

Bank of America/Merrill upgraded Micron stock after the news, while Needham lowered its price target to $63, citing strong metrics but an adverse economic environment. More analyst calls are likely to follow, but huge uncertainty reigns in the semiconductor space due to the pandemic, and calling the bottom too early could backfire. Even so, the stock continues to hold support at the December 2018 level, unlike many of its chip peers.

Price action has now settled on the 200-week exponential moving average (EMA), which ended the 2018 sell-off as well as a pullback in June 2019. The overall pattern since 2017 looks like a large-scale triangle, with lower highs and higher lows telling investors that it could be months before a breakout or breakdown generates a new trend. Fortunately for bulls, accumulation has held up exceptionally well through the crisis, giving a slight edge to the upside.

MU Long-Term Chart (1990 – 2020)

The stock completed a multi-year bottoming pattern in 1990 and turned sharply higher, entering a powerful uptrend that topped out at $47.38 in 1995. A steep slide found support in the single digits one year later, setting the stage for a March 2000 breakout that flamed out after hitting an all-time high at $97.50 a few months later. The subsequent downturn gathered momentum through the internet bubble bear market, dropping to a nine-year low at $6.60 in the first quarter of 2003.

A recovery wave through the middle of the decade posted mediocre gains, stalling in the mid-teens in 2006. The marked the highest high for the next seven years, ahead of renewed selling pressure that broke 2003 support during the 2008 economic collapse. The eight-year downtrend finally ended at $1.59 in November 2008, giving way to a recovery wave that completed a round trip into the prior high in 2013.

The subsequent advance stalled at $36.59 at the end of 2014, while a reversal failed the breakout in August 2015, initiating a selling climax that ended at a three-year low in the single digits in January 2016. The stock then ticked higher in two broad waves, reaching 2014 resistance in October 2017. The subsequent rally ended at the .786 Fibonacci retracement level of the eight-year downtrend in May 2018, setting a resistance level that hasn't been breached, ahead of a steep decline that found support near $30 in December.

MU Short-Term Outlook

The stock has traded between those boundaries for the past 22 months, carving a triangle or more complex holding pattern. However, the 2018 reversal set off a major warning sign because long-term trends in both directions often fail at the .786 harmonic level. Even so, the warning won't expand into a full-blown, long-term sell signal until December 2018 support breaks and establishes a new downtrend.

The monthly stochastic oscillator entered a sell cycle in January 2020 before reaching the overbought level, exposing hidden weakness. The indicator is now expanding through the panel's midpoint, telling market players that bears remain in charge, despite this morning's uptick. In turn, this predicts that 200-day EMA resistance at $48 will limit short-term upside, while there are no guarantees that the stock will hold 2018 support on the next sell-off.

The Bottom Line

Micron stock is trading higher after a mixed quarter, but long-term sell cycles remain firmly in place, raising the odds for an eventual breakdown. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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