Micron Technology, Inc. (MU) Stock Is About to Break Out

Advertisement

Tech wreck? What tech wreck? With the Nasdaq scoring its eighth straight up day, weakness in the tech sector is now a distant memory. So much for the argument that the sector was topping. Momentum lovers will be happy to know that semiconductor stocks from Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) to Micron Technology, Inc. (NASDAQ:MU) are on the mend. Though the entire trio looks solid, it’s MU stock that’s beckoning to my profit-seeking eyes today.

Micron Technology, Inc. (MU) Stock Is About to Break Out
Source: Shutterstock

As an aside, the recent bear raid in the tech sector illustrates the difficulty of spotting tops as they form. There’s no doubt this eight-day rally is demoralizing any and all bears hoping for follow-through to the June swoon.

With the right shoulder of the head-and-shoulders pattern in the Nasdaq now broken, you can officially toss this reversal attempt into the garbage with all the rest of the failed tops in recent years.

MU Stock Charts

The glory that is Micron’s price trend can be seen in its entirety on a weekly chart.

MU stock chart weekly view
Click to Enlarge
Source: OptionsAnalytix

MU boasts one of the cleanest-looking, most well-behaved trends on the Street. Since bottoming near $10 just last May, the stock has climbed some 219%.

Not bad for a year’s worth of work.

Micron’s channel has been money to trade off of. Every test of the trend line has been bought like clockwork, including the one from two weeks ago. Some mild signs of distribution did crop up during last month’s tantrum, but given the robust recovery in the tech sector, I wouldn’t be too concerned.

Alarmists might also point out the slight Relative Strength Index (RSI) divergence that is forming. This signal suggests the weekly uptrend has slowed in momentum. But so what? Given the rocket-like rise in MU stock, it was bound to chill out sometime. And the consolidation comes with a silver lining — it’s building a base to trade a breakout from.

Turning to the daily chart reveals the recent rally has carried Micron stock back above its 20-day and 50-day moving averages.


Click to Enlarge
Source: OptionsAnalytix

And since the stock has paused for five trading sessions, we now have a clean breakout setup over $32.

A pop above the $32 mark has the potential to lift the stock back to its 52-week high near $33 and beyond.

2 Mighty Trades on MU Stock

One of the primary reasons why I find Micron Technology more attractive than its peers is that it already reported earnings. We can now trade away without fear of a binary event throwing a wrench into our plans.

With the late-June earnings release fading in the distance, implied volatility has dropped to the lower quartile of its one-year range. MU’s implied volatility rank is 18%.

So if you want to swing for the fence on this, if you believe the resurrection in semiconductor stocks will go on to glory, then buy the Aug $31 call for $1.90. I suggest waiting for a pop above $32 before pulling the trigger. The risk will be limited to your initial cost, and the reward will be unlimited.

If you’re looking for a higher-probability play, then consider selling the Aug $30 put for 63 cents. The margin requirement should start around $450, so the potential return is a modest 14%. If MU stock stays above $30 for the next month, you’ll capture the 63 cents. Otherwise, you’re obligated to buy the stock with a basis of $29.37 if the put sits in-the-money at expiration.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/micron-technology-inc-mu-stock-is-about-to-break-out/.

©2024 InvestorPlace Media, LLC