Trade of the Day: MU Stock Executes Near-Perfect Reversal

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Micron Technology, Inc. (MU) — As the broader market bottomed in mid-October, I featured MU stock as one of the “best undervalued buys in the market.”

This memory chipmaker has been one of the best performers on my Trade of the Day buy list. I first recommended MU stock in March 2013, near $10. Shares have since more than tripled, surpassing my steadily increasing price objectives and analysts’ earnings estimates.

In the most recently reported fiscal fourth quarter, operating EPS of $0.82 a share exceeded S&P Capital IQ’s $0.79 estimate. Following the beat, its analysts, who have a “hold” rating on shares and $38 price target, raised their full-year guidance. They upped fiscal 2015 (ending in August) expectations by $0.21 to $3.65 per share, and fiscal 2016 by $0.65 to $3.62.

MU stock ran from the low $20s at the start of 2014 to a high of $34.85 in July. From there, it consolidated in a bullish “W.” It formed a double-top in late September at exactly $34.85.

After falling 24% in the broader market sell-off, MU stock triggered an upside reversal in mid-October. I issued a buy recommendation with a trading objective of $32 and a long-term goal of $50.

The stock’s reversal was almost perfect, having pierced its 50-day moving average at $32, which is now support. At this level, it is prudent to enter a trailing stop-loss order at $30 and move it up if MU stock advances.

A break above $35 would change the near-term target to $36, but because of its high volatility, I would still recommend using a 10% trailing stop. Investors should continue to hold MU stock for a long-term objective of $50.

MU Stock Chart
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