In the market only the opening and closing bells are guaranteed. But following a standout earnings surprise off and on the price chart of Micron Technology (NASDAQ:MU), MU stock is well-positioned for a substantial continuation move and outsized, risk-adjusted profits for bulls. Let me explain.
Wednesday was rightfully a very good day for MU stock. Nowhere has the negative impact of the U.S.-China trade war been more of a burden than in shares of Micron. So when the Idaho-based memory giant delivered an easy profit and sales beat for its lowered third quarter and issued an even more shocking raised outlook for its fourth quarter, shares justly soared by nearly 13.50%.
While Micron’s forecast is still below Street views, the company does expect strong sequential growth in the fourth quarter on improving inventory problems. Micron’s management also sees good demand for DRAM returning to healthy year-over-year growth in the second half of 2019.
Bottom line, trade war fears accentuated by the Trump Administration’s Huawei ban and longer, tethered worries of a peak in the memory chip dragged Micron shares down a whopping 28% since their April peak and a more menacing 47% over the last 13 months. Now, and with much of that concern handily reduced, an overblown bear market in MU stock is in a strong position to resolve itself into a bonafide bull.
MU Stock Weekly Chart
At the beginning of June, I wrote an article at InvestorPlace regarding MU stock’s shellacking and how the overly bearish move into key technical zone support made shares ripe for a contrarian-minded bullish opportunity. The low in Micron was literally nailed.
Now and with earnings in hand and Wednesday’s breakout of a month-long congestion pattern, MU bulls have every reason to step up to the plate and buy shares. What’s more, with Micron finishing at $37.04, the stock is only 3% above pattern resistance. That’s an attractive entry point for a volatile name like MU stock, but that’s not all either.
Affirming Micron’s bullish situation, shares are just now re-crossing their prior 16-year highs for a second time this year out of a higher low pattern on the weekly chart. That’s bullish. Lastly, with stochastics grinding higher and just about ready to move out of an oversold set-up, the case for buying Micron only grows clearer.
For investors agreeable with our enthusiasm, the recommendation is to buy MU stock and set a stop-loss beneath $34.25. That amounts to a well-controlled loss of about 7.50%. It’s also an exit price that reasonably shouldn’t be revisited given the lengthy and severe corrective work in shares, unless we’re dead wrong about Micron’s prospects.
Optimistically and on the upside, it’s easy to see there’s a lot of potential catching up for MU stock before a rally would look extended by any sort of measure in today’s market. Nevertheless and appreciating both sides of money management, the April highs near $45 a share would be a first target for profit-taking to ensure a very attractive risk-adjusted position takes full advantage of this opportunity.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Micron (MU) and its derivatives but no other securities mentioned in this article. 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, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.