Micron Technology, Inc. (NASDAQ:MU) has struggled since reporting better -expected-earnings on March 23.
InvestorPlace contributor Chris Tyler did a superb job in drilling down into the numbers in his post-earnings analysis, highlighting not only the Micron earnings beat, but also the improved guidance. MU stock finally has finally ended a long period of consolidation and now looks poised for a new upside breakout.
Click to Enlarge I will leave all the technical talk about DRAM and NAND to those infinitely better suited to discuss such topics. My focus here will be on the technicals.
Since making a low of $9.35 a year ago, shares of MU stock have been the embodiment of a trending stock, as seen in the chart.
The old trading adage “The trend is your friend..until it ends” certainly applies to the price chart of Micron. With MU still hugging the trendline, there is certainly no reason believe the trend will end anytime soon.
MU stock filled in the post-earnings gap to near precision, with the critical $26.50 level holding. Shares of Micron technology now look poised to take out the earnings day $28.50 resistance level. This should be a catalyst for a sharp move higher in MU.
Micron stock is normally correlated to the PHLX Semiconductor (INDEXNASDAQ:SOX), which makes sense given that MU stock is a major component of the index. Recently the correlation has broken down, with MU being a definite laggard. I expect that correlation to revert and for Micron stock to be a relative outperformer in the coming weeks.
MU stock is also looking poised to make a run higher from a MACD perspective. When MU was at this juncture before, it proved to be the ignitor for a sharp move higher in Micron shares.
With implied volatility at extreme lows in virtually every stock, long option strategies are definitely favored. MU options are no exception, currently trading very cheap at only the eleventh percentile. So a simple long call purchase makes intuitive sense to me.
MU Stock Trade
Buy the MU May $28 calls at 95 cents. While I normally prefer spreads to mitigate some of the theta (time premium) and vega (volatility) exposure, in the current regime of uber-cheap implied volatility those exposures are of minimal concern.
Maximum risk on the trade is the premium paid of $95 per option. A breakout move to the recent intraday high of $29.87 would equate to roughly a 100% gain in the MU May $28 calls.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at tbiggam@deltaderivatives.com.
