Micron’s post-earnings dip won’t last, and the stock could bounce to new highs, charts show
Micron (MU) has been on an amazing run. It’s the second-best performing stock in the S & P 500 over the past 52 weeks with a gain of 352% and a top performer this year with gains of 61% coming into Thursday’s session. On Wednesday night, the company’s quarterly report crushed expectations. It wasn’t just a beat: It was Micron flexing pricing power in an environment where artificial intelligence demand is still outstripping supply. The real story was the guide: Micron called for third-quarter revenue of about $33.5 billion. But I’m not here to talk about how great the fundamentals are, that’s not my specialty. For that you can reference Jim Cramer’s great interview with CEO Sanjay Mehrotra on “Squawk on the Street” or watch my colleague Paul Meeks discuss with Morgan Brennan on “Worldwide Exchange .” We want to focus on a recurring theme we’ve seen in this market – technology companies that crush earnings but fail to follow through with new highs. We saw it in the semiconductor space with Nvidia and Broadcom and to a different extent in the software space with Microsoft , Adobe and Oracle . Now Micron joins the list. Each stock is very different from a technical point of view. In Micron’s case the stock has been on a heck of a run. Looking at it on multiple timeframes we see some positives as to why this can keep going, as well as an opportunity for investors to take advantage of the dip. The setups Looking at a one-year daily chart we saw shares try to break out ahead of results, and for now they have failed to keep momentum going. That can lead to drastic reversals at times, so we need to check levels of support. Here we see some key levels to watch. There’s a rather wide consolidation area between $360 and $460. Clearly the stock has been volatile, but the trend remains higher. Our key levels in this scenario are 20% apart which has been great for a swing trader but can make the average investor skittish. Given the stock’s fundamental strength, as well as its comparative relative strength to its sector and the S & P 500, expect a much lower range to the downside this time around. Looking at price action over the longer term, we back it out to a five-year weekly chart for perspective. Here we see its parabolic rise over the last year but one consistent pattern – on a weekly basis, price action is trending perfectly on its 10-week moving average. An uncommon but historically robust gauge for overbought/oversold conditions is measuring the stock price’s percentage deviation from a select moving average period, with the benchmark bounds being set at plus or minus 10%, based on the Dow Industrials back testing. Despite the steep rise we’ve seen, Micron’s extension from its 10-week simple moving average has already normalized. After peaking at about 38% above the 10-week average on Jan. 20, the stock now sits near the midpoint of its typical plus or minus 10% range, suggesting the prior overbought condition has largely reset while the broader uptrend remains intact. Based on weekly closing highs, any close this week above $430 confirms the longer-term breakout and will become new support. The trade Scenario one: the short-term trade Watch how shares close on Thursday. If price can hold the gap from Monday’s low at $437.75 then the stock is poised to rally back quickly and should be making new highs in the next few days. This level is our near-term level of support if we are trading this and not owning it. Scenario two: the potential sideways action This is a scenario in which price falls into a neutral consolidation zone giving the swing trader ample opportunities to profit but frustrates the long-term holder who will yell at their screen about how great the earnings and guidance was. We have seen this in the past with Nvidia during its multi-year bull run and are seeing it again now. Micron could fall into that zone. It doesn’t help that market conditions aren’t the ideal tailwind right now. Use the rising 50-day moving average as your stop-loss and look to buy back at $360 if this gets dire. While it seems unlikely for the downside to play out, one always must stay true to their risk management levels and be prepared. Scenario three: long-term trade This falls into the classic Jim Cramer “own it don’t trade it” scenario. It checks all the boxes fundamentally and technically right now. The trends remain and shares are consolidating after a great rally. One question the investor may be asking is “Can it continue this historic rise?” One of the toughest things to do is buy a stock that has been going meteoric. As a technician it is always better to buy a stock on strength with momentum than to try and pick a bottom. Nothing has changed in that regard and for those looking for an opportunity to get in the name it’s still not too late as the long-term trends are indeed strong. — Jay Woods, CMT with Chase Game DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. 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