Shares of Micron Technology, Inc. (NASDAQ:MU) rallied 7.4% last Friday after the company reported better-than-expected results for its most recent quarter. Although MU stock has risen sharply over the past 12 months, the primary trend remains higher.
When Micron announced strong results and promising guidance last week, analysts were quick to follow suit and raise their price targets for the stock. For example, JPMorgan raised its target from $33 per share to $38. Deutsche Bank propped its target on MU shares from $30 to $35.
In my proprietary research, I have found mixed results over time regarding stocks reaching analyst price targets. However, when combined with a solid growth story and supporting charts — which is what we have right now in MU stock — stocks don’t often just meet these price targets, but easily surpass them. This then leads analysts to continuously raise their PTs until greed takes over and expectations get too high.
Lastly, analysts end up greatly missing the major turning points — both in company fundamentals, and in stock prices.
Let’s move on to Micron’s charts.
MU Stock Charts
We see on the multiyear weekly chart that Micron was a great breakout story from mid-2013 into late 2014. The wind then quickly changed, leading to a whopping 75% drop over the ensuing 13 months that fully retraced the entire 2013-14 breakout.
However, note that despite the big drop, MU stock found support around the $10 area, which in years past had acted as a lid on the stock. So, with former resistance turning into technical support, Micron began clawing its way back up from the early 2016 lows in a trend that remains intact to this day.
Trend followers and active investors alike should continue to respect this trend until it ends and the lower end of the uptrending parallels is violated for good.
On the daily chart, we see that since spring 2016, the 50-day simple moving average (yellow) has held as notable support.
Until last Friday, the upper end of this uptrend had not been violated, but the post-earnings giddiness last week was too strong to keep Micron stock within this channel.
Through a technical lens, at this juncture I would argue that last Friday’s up-gap may have been an exhaustion gap. That is to say, MU stock likely must consolidate before a next better leg higher — and thus better entry points to the long side — appears. Specifically, Micron should be a better buy again somewhere in the mid-$20s after it has cooled off.
Quick traders could try to play MU to the short side into the mid-$20s using the $30 area as a well-defined stop-loss. More patient traders could wait for the next bullish reversal to appear following a consolidation period, which then may be the sign for a next leg higher into the low to mid-$30s.
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