The tech-heavy Nasdaq Index is probing below its 50-day moving average this morning. And that has dip-buyers on the prowl.
Focusing on the tech sector (particularly semiconductors) is smart. Stocks like Micron Technology, Inc. (NASDAQ:MU) have been holding firm and will arguably be the first to pop once the broad market selling pressure abates.
Before diving into Micron’s stock chart, let’s first see how the Vaneck Vectors Semiconductor ETF (NYSEARCA:SMH) has been faring. Unlike virtually every other sector ETF, SMH was able to fully recover from the February crash notching a marginal new high this week. Three accumulation days (high-volume up days) accompanied the rise showing institutions were returning.
We’ve also seen relative strength during this week’s retreat. While the Nasdaq Index has already breached its 20- and 50-day moving averages, SMH is still above both. Like all ETFs, SMH has the resiliency of its top holdings to thank for its bullishness.
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Micron stock is one such constituent that is looking mighty fine this morning. Micron recently broke out of a multi-month basing pattern with a spate of accumulation days. The fact that it’s been consolidating for so long suggests there’s plenty of gas in the tank if buyers want to press their advantage.
While MU did find resistance near $50 on Wednesday, the selling so far looks like a garden-variety pullback. This morning’s down-gap was gobbled up showing spectators are eager to scoop up shares.
A Clever Dip Buy in Micron Stock
Because market weakness may put a damper on MU’s next advance, let’s build a higher probability spread trade to capitalize on the pullback. If you’re willing to wager the stock can stay above $45 for the next month then sell the April $45/$40 bull put spread for $1.35 credit.
The max reward is limited to the initial $1.35 and will be captured if the puts end up expiring worthless. The max risk (and cost) is $3.65.
As of this writing, Tyler Craig held bullish trades in MU. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
