Shares of Micron (NYSE:MU) have been on a monster run since the Christmas lows at the $29 area. MU stock has tacked on over 20% in the past month, far outpacing the torrid 6% gain for S&P 500 in that same time frame. Certainly some of the rebound was warranted given the brutal selloff leading up to the recent red-hot rally.
Micron stock, however, has come too far, too fast. I expect MU to pull back over the coming few months.
On the surface, the ridiculously low forward price-to-earnings multiple of roughly 5.5 looks like an absolute bargain. Micron, though, has always traded with a discounted multiple due to the commodity type pricing of memory chips and flash, the two biggest components of the MU revenue stream. InvestorPlace contributor Vince Martin provided a deep drill down on why valuations for Micron remain at such depressed levels.
How to Approach MU Stock
When trading Micron stock, I prefer to focus on the technicals, especially in algo- and machine-driven trading environment that trading has become. MU is fast approaching some serious overhead resistance at the $39 area. MACD is starting to weaken after reaching an extreme.
Micron stock price is also trading at a big premium to the 20-day moving average, another sign of overexuberance.
When both MACD and the 20-day moving average have reached coincidental extremes in the past has marked significant intermediate term tops in MU stock. This is especially true now that Micron is at major resistance.
Click to Enlarge Micron is set to report earnings on March 19 with expectations of $1.70 in EPS and roughly $6 billion in revenue. MU stock got hammered following the last earnings report on Dec. 18 when the company beat slightly on EPS but missed badly on revenues and guided lower. Yet now Micron has regained all of that lost ground plus more, trading almost 15% higher from the pre-earnings close of $34.11. Momentum can ignore fundamentals for only so long. Once the momo breaks, MU stock will likely retest the lows.
I would look to short MU stock at current levels with an initial price target at the 20-day moving average at the $34 level. A meaningful upside breakout past $45 would be a prudent stop out area. Micron doesn’t pay a dividend, always a consideration when shorting any stock.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
