It’s no secret that a good part of the gains in the S&P 500, Nasdaq-100 and other large-cap U.S. stock indices have been the result of notable rallies in tech stocks. Semiconductor companies are among this pack of leaders, with the Market Vectors Semiconductor ETF (NYSEARCA:SMH) up 20% for the year. And part of that group is Micron Technology, Inc. (NASDAQ:MU). MU stock is up 40% year-to-date — twice that of the SMH — and should continue producing higher highs, making it a perfect trend following candidate.
Trend following, if done right — which isn’t hard with a simple risk management process — can be one of the most rewarding strategies any individual or institutional investor can implement. To find strongly trending assets, I have a proprietary scanner that looks for strong trends from a multiweek, multimonth and multiquarter perspective.
In late 2016, the semiconductor stocks and the SMH ETF came up on my radar as a strongly trending group of stocks that look primed to go higher. The way I see it, there are two ways to follow trends:
- One way is to buy the dips and sell the rips (i.e., buy the stock or ETF at the lower end of the up-trending range and take at least partial profits at the upper end of range).
- The other way is to wait for some sort of breakout to take place near the lower to middle of the range before getting back into a stock.
Regardless which of these two approaches a trader takes to trade a trend, the key is to recognize that the trend remains your friend until it ends.
MU Stock Charts
Looking at Micron’s multiyear chart, we see that the most recent uptrend is well-defined by the purple parallels.
Since bottoming out 12 months ago, each dip has been bought. And by December of last year, Micron stock managed to break back above its red 200 week simple moving average.
Until we see the return of volatility in the U.S. stock market, MU stock looks to remain in this uptrend and could work its way back up to the 2014 highs in the mid- to high $30s.
On the daily chart, we see that Micron gapped higher on March 24 following its most recent earnings report and reached the very upper end of the aforementioned uptrending channel.
MU stock then slipped into a sideways consolidation phase that ended Friday, May 26, when the stock broke higher. It then saw continuation buying yesterday, May 30.
From here, barring any sudden outside shock, Micron shares look ripe to gravitate toward the $33 area as a next upside target. Any strong bearish reversal should be respected from a swing trading perspective.
EDITOR’S NOTE: Beat the Bell Editor Serge Berger will be moving on to the Daily Trader’s Alert on June 1. To learn more about how to continue following Serge, as well as Beat the Bell’s new editor, Tyler Craig, click here.
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