U.S. stocks continued their post-election rally on Tuesday, and it was all about the sector and industry rotation story. Semiconductor stocks like Micron Technology, Inc.(NASDAQ:MU) got a bid that pushed them right to the edge of an important breakout. MU stock could be the next stock to pop, active investors and traders would be wise to watch it closely.
I told my Clubhouse Members yesterday that the most straightforward (note: not easy) market environment is when investors rotate from one group or industry of stocks to the next. On the charts, this is represented by visibly obvious breakout patterns.
Over the past few months — and in particular over the past week since the election results — stocks are once again in this type of an environment. The first set of stocks to rally hard after the elections were the financials, industrials and transports. In fact, both the financials and the transports had shown very promising signs of possibly blasting higher way before the election results.
On Tuesday, we saw the financials take a pause but money started rotating into energy stocks and select pockets of the technology sector, particularly semiconductors like Micron stock.
MU Stock Charts
On the multiyear chart of Micron stock, we see that in May, it began to break higher, and at least for now, it ended the vicious downtrend it had been in since late 2014.
As a result of the rally of the past few months, MU has now arrived at horizontal resistance. This line currently also matches up with the blue 100 week simple moving average.
A break and hold above this area could see MU stock rise plenty further over the next weeks or months.
Zooming in on the daily chart, we see that after basing for multiple months, Micron stock in May began to break higher — first above its 50- and 100-day simple moving averages (yellow and blue lines, respectively), then above the red 200-day SMA.
The ascent has been orderly, and by September, it had exhausted itself for a while. But instead of breaking lower, MU stock merely fell into a constructive sideways consolidation phase, which is now looking like it wants to resolve to the upside.
Note that Tuesday’s 2% rally marginally pushed MU stock out of the consolidation phase — the top of which also lines up with a diagonal resistance line from the reaction high from October 2015.
From here, barring any major bearish reversal, Micron looks poised to push toward $19 as a next upside price target. Next upside targets beyond there are $20, followed by as high as $23.50. The latter would satisfy a gap fill of the down-gap from June 2015, which I marked on the chart with the blue box.
Respect the sector and group rotation. As active investors and traders, we want to play where the money is flowing to.
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