Mighty Micron Technology, Inc. (NASDAQ:MU) shares have gone limp, but shareholders shouldn’t be surprised. This week’s drubbing was preceded by a meteoric rise for the ages. From mid-February to mid-March, MU stock rocketed 69% higher, virtually uninterrupted. The stock was begging for some profit-taking to remove the froth.
With the excess now extracted, Micron is once again a buy. Here’s why.
For starters, the weekly chart remains one of the best uptrends on the Street. Momentum soared during the last upswing bringing renewed strength. While there is a small chance that we just experienced a blow-off top, I think buyers deserve the benefit of the doubt here.
We did see one major distribution day during the current pullback, but nothing that I find alarming or indicative of widespread register ringing. The next support on the weekly chart will arrive in the form of old resistance at $50. The fact that it’s a nice round number doesn’t hurt either.
The daily chart reveals sellers succeeded in taking Micron stock below its 20-day moving average, but not the 50-day. Further, if the $50 potential support zone gives way, we have a pair of prior peaks at $47 that could lend buyers a hand.
Finally, if bears really sink their teeth into the trend, monster support will come in near the $40 area. A cluster of bottoms and the 200-day moving average wait in that spot to turn the tide if the plunge were to reach such depths.
Regardless of if we see a few days further of bloodletting, I’m eyeing this dip as a put selling opportunity. The high implied volatility is allowing us to go a ridiculous amount out of the money and still garner a 10% return.
Micron Naked Puts Await
Sell the May $41 puts for 50 cents. Consider it a bet that MU stock will sit above $41 at expiration. The options market is pricing in a 90% chance of success so consider the odds way in your favor. By selling the put, you do obligate yourself to buy shares at an effective purchase price of $40.50. That’s a hefty 22% discount to the current price.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
