Micron Technology, Inc. (NASDAQ:MU) shareholders are finally receiving their comeuppance. But hold the sympathy, please. MU stock was up a barn-burning 43% in a virtual straight line before the drubbing yesterday, so these fattened hogs were overdue for the slaughterhouse. Fortunately for spectators, this beatdown brings opportunity in its wake.
Before diving into the details of how you can sow seeds on this dip, let’s chronicle Micron stock’s recent action with a brief look at its weekly and daily charts.
MU Stock Charts
The weekly trend is a thing of beauty. Bulls have dominated since 2016 and are thus far undefeated in their bid to create higher pivot lows. Someday the willingness of buyers to sally forth at higher prices will abate, but good luck nailing the timing. For now, don’t fight the trend. View any and all dips as a gift to be opened, not ignored.
To discover relevant price levels that could lend support, let’s turn to the daily chart. Technical analysis 101 says finding support is all about gaps and pivots. Here are three ways these come into play with MU stock.
First up is the unfilled gap from May 22. With yesterday’s descent, we’re close to testing the zone. Buyers often show up in defense of gap areas to keep them from filling. Consider $58 the first potential floor, one investors are fighting over right now.
Next, we have a potential gap-fill and 20-day moving average near $55. If prices begin to fill the void, they could continue dropping until this area.
Finally, the previous pivot low and 50-day moving averages come into play at $52.65. Admittedly, a descent to this level would mark a substantial pullback, but Micron is a volatile beast, so it’s certainly not out of the question.
The key is to wait for signs or confirmation that support has formed at one of these levels. Upon seeing the evidence, pull the trigger on the following bullish trade idea.
Naked Micron Puts Beckon
Since MU stock is a mover and a shaker, its option premiums are always pumped which makes them more attractive to sell. That, coupled with the fact that we don’t yet know where this pullback will finally terminate, has me thinking selling out-of-the-money naked puts is the way to go.
And to further increase our odds, we’ll scale-in.
Right now I’m eyeing the July $50 puts. They can be sold for about $1. I like the idea of selling half your position when MU starts to rebound (could be today or could take a few days). Then, wait to sell the other half if Micron falls further, and you can get 1.5x the original premium. So if you sold your first put at $1, then sell the second one at $1.50.
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.
