For some investors, Micron Technology, Inc. (NASDAQ:MU) has been climbing a wall of worry the last few weeks. For others though, the big picture of MU stock is simply looking increasingly bullish off and on the price chart.
A month ago, MU stock couldn’t get out of its own way. Shares were garnering the attention of bearish technicians backed by equally flimsy speculations. A dismal late-July report from Seagate Technology PLC (NASDAQ:STX) and worry Micron’s key DRAM market was quietly working its way into an undesirable supply glut were the loudest alarms being sounded. “Booyah!”
“Poof!” Gone or at least massively suppressed are narratives of doom and gloom for MU stock. In fact, shares have been handsomely outperforming the broader market and recouping virtually all the ground lost over the last four weeks.
No doubt the passage of time has helped some investors appreciate MU’s weak correlation with Seagate. Other investors may have woken up to a much more closely aligned and very bullish report from SK Hynix which got swept under the carpet in the aftermath of Seagate’s warning.
At the end of the day, it’s often difficult to know what’s responsible for quick-to-change investor sentiment in MU stock, other than appreciating the neuroses of the market for what they are.
Having said that, sometimes it is obvious.
Shares of MU were up again on Tuesday and outperforming the market as bulls attached themselves to an upbeat analyst note from Credit Suisse. Following an industry conference this past week chip analyst John Pitzer offered up the view Micron’s past troubles with memory market commoditization may be weakening.
In a nutshell, the demands of artificial intelligence and machine learning within cloud computing require “high-bandwidth memory” or HBM. As this type memory is critical to the success of this increasingly important market, price pressures for these type chips should see less violent cyclical behavior. That stands to benefit Micron.
And if we’re to believe MU stock, that bullish trend could be making itself known on the price chart as well.
Micron Stock Weekly Chart
In early August as MU stock was getting pummeled, displaying extreme relative weakness and causing at least one analyst to tone down their prior enthusiasm, I thought it would be wise to step back and look at the big picture.
Fast forward about four trading weeks and the prior mayhem of MU’s daily chart, which I suggested to ignore, looks even less of a concern on the weekly view. What had been described as a constructive counter-trend consolidation within a 15-month uptrend when shares were at $28.34, now has (some) investors breathing easier.
For bulls who enjoy blue sky conditions on their price charts, MU has confirmed its 15-month uptrend with its recent higher low, which held above two key Fibonacci levels. MU stock could also be catching eyeballs with its slightly flawed three-month handle-like pattern within a near two-year-long massive corrective cup base or a corrective and high-level “W” or double-bottom.
No matter what you label MU on the weekly chart, it’s all bullish. One warning though, don’t bother to look at the daily chart or there might be new reasons like a filled price gap and angular resistance line to get worried over. “Booyah!”
MU Stock Bullish Combo
Courtesy of OptionVue.com
An Oct $31/$35 bull call spread proffered last time is doing quite well. The vertical has gained 85 cents or 130% in climbing from a price of 65 cents to $1.50 thus far.
Currently and if investors are agreeable with a bullish forecast off and on the price chart, a modified fence is a nice limited-risk strategy to consider. One such combination that’s favored is selling the Oct $29/$28 put spread and purchasing the Oct $34/$35 call spread. It’s priced for even money with MU stock at $31.48.
What does this combination offer MU bulls? If shares remain between $29 and $34 at expiration, both spreads go out worthless and the trader neither makes or losses money. That would feel pretty good if MU was at $29.10, but less likely to bring a smile if shares were up a couple points at $33.75 or so.
The good news with the latter scenario is if MU stock rallies during the spread’s life, profits can accrue within the inside strikes as the position is long deltas. However, the closer to expiration, the more difficult it will be to turn a profit as the call spread is still out-of-the-money with less time on the calendar.
What if MU climbs above $35? Since the trader didn’t pay to own the vertical spread, an expansion to $1 results in a profit of $1 at expiration.
And how about a more bearish scenario where MU stock simply tanks in price? While it wouldn’t be entirely welcome, remember the modified fence a max loss of just $1. Compared to the much larger loss in share value, the small and controlled risk puts investors in a much healthier all-around position to be greedy when others are fearful and that’s typically a very good approach in the world of mad money.
Investment accounts under Christopher Tyler’s management currently own positions in Micron stock and its derivatives. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
