Following Monday’s technical reaction in Micron (NASDAQ:MU) there is additional bullish ammunition in the battle for higher prices in MU stock and reasons for investors to go long shares today.
Let me explain.
The major indices kicked off the week with solid, albeit less fruitful gains by day’s end, following the G-20 Summit and an agreement between the U.S. and China to a 90-day ceasefire on any tariff increases as the two countries continue talks regarding the trade war.
The limited truce could turn into a potentially very large support for technology companies like MU stock, which are so reliant on diplomatic business relations between the U.S. and China. As such (and given the taxing trade environment for market bulls the past couple months), Monday was filled with relief for the bull camp.
For its part, Micron shares handily outperformed the broader market’s relief effort. MU stock gained 3.81% on the session and more than double the 1.75% the tech-heavy Invesco Trust NASDAQ 100 (NYSEARCA:QQQ). However, the QQQ did manage to break back above the 200-day simple moving average into bull territory.
That’s not to say bears have surrendered altogether. To be sure, bears will be quick to remind MU stock bulls the environment remains uncertain. The trade war could easily escalate before a more meaningful agreement is reached. And that of course could pressure shares of MU.
Alternatively, if industry-specific concerns that the memory market has peaked gain credibility with investors, that wouldn’t be good for Micron’s DRAM and NAND business or MU stock. Ultimately, there’s always going to be some type of risk lurking in the background.
Nevertheless, call me silly, but I prefer to see the silver-lining for MU stock. And at this point in time, if charts are leading indicators of future business conditions, Micron bulls should be ready to apply some sunblock as sunnier days are ahead.
MU Stock Weekly Chart
I’ve said it before, but it bears repeating: Periods of fear and greed are no stranger to Micron stock. And in recent months, the fear-mongering bears have been in control of MU with shares losing nearly 50% since May’s intermediate high of $64.66 to its late October’s low of $33.82.
The good news is a bullish cycle for MU stock is in solid position to upend the current bearish phase. Aside from the common deep correction Micron has experienced, the price action in shares has developed a two-month long double-bottom test into key support. That’s bullish, but there’s more to the story.
Micron’s reversal pattern has formed inside the 50% – 62% retracement levels dating back to 2016’s trough / cyclical low. Further and also bullish, the price action has revisited MU stock’s breakout point from its prior bearish phase. That particular cycle manifested itself on the price chart as a large cup-shaped base nearly three years in-the-making.
Now and with Monday’s bid in MU stock confirming a two-week candlestick pattern that the double-bottom is in place and breaking above downtrend resistance, bulls have solid technical evidence to go long shares with a strong risk-to-reward profile.
MU Stock Trade
I’d recommend purchasing shares today on the pullback in anticipation buying on weakness will be rewarded. That being said, in appreciating Micron’s volatility and in the event a bottom isn’t in the cards, using a 10% stop below last week’s inside candlestick is favored.
Alternatively, and for like-minded Micron stock bulls wanting guaranteed downside protection, a married put or collar are favored spread strategies using MU stock and the options market.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Micron (MU) 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 options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.