As bad as Monday’s ‘tech wreck’ was for select large cap investors, nowhere has the damage in technology been as bad as in the semiconductor sector. And nowhere is that destruction of value more compelling as a contrarian investment than in Micron Technology (NASDAQ:MU) and buying MU stock today. Let me explain.
This week began on a very sour note for the tech sector with the ‘antitrust’ swear word rearing its ugly head after a couple years of quiet. The targeted are consumer favorites and increasingly powerful digital platform companies such as Amazon (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL) and Facebook (NASDAQ:FB). On the news, each suffered heavy losses — ranging from around 4.65% to about 7.50% — and adding to growing losses accumulated over the past month.
Corrections since early May have amounted to price declines of roughly 15% for AMZN and about 20% for both GOOGL and FB stock. Those losses sting to be sure. But the real tech wreck inside of technology companies has been and remains in the Vaneck Vectors Semiconductor ETF (NYSEARCA:SMH) and in particular Micron shares.
While the tech-heavy Nasdaq is dealing with corrective losses of around 11.50%, the SMH has declined by 19% and is flirting with being in a full-fledged bear market. But the losses in those benchmarks, as well as what the aforementioned FANG stocks have witnessed pale in comparison to MU stock’s dizzying declines of 28% since April and 47% over the past year since hitting a relative high in May 2018.
Behind the pressure in MU stock, very well-telegraphed worries over an escalating trade war between the U.S. and China punctuated by the Trump Administration’s Huawei ban have negatively impacted the memory-chip giant. In turn, worries dating back to last year of the cyclical and highly-commoditized memory market having peaked has only been compounded.
The good news is with every cloud there is a silver lining. Or in the case of MU stock, there’s a price chart with strong reasons to be optimistic sunnier days are around the corner.
MU Stock Weekly Chart
I don’t think any investor, except a fear-mongering bear, would disagree deep losses and excessively pessimistic sentiment typically provide for a very strong contrarian-minded bullish opportunity. And given what’s been addressed, I’m inclined to believe we’ve reached just that kind of situation in MU stock.
Affirming this bullish point of view, we can see MU stock’s larger correction reversed higher after a loose test of its 62% retracement level formed during its 2016 – 2018 rally, as well as the 200-week simple moving average. The action over the past several weeks looks similar on a smaller scale. Shares of MU are piercing the 62% support level of the rally developed from the December 2018 bottom to the March 2019 peak as stochastics generates an oversold crossover signal. It looks bullish, but there’s more too.
During Tuesday’s session Micron is confirming a weekly bullish candlestick reversal pattern. And with shares holding above the key long-term weekly moving average and forming a relative higher low, there’s more than a few reasons to be optimistic, as well as to consider buying MU stock today.
For investors agreeable with MU stock being in position to move higher from here, I’m not placing an upside price target on shares. Ultimately, I’m looking for a higher high pattern to develop in 2019. That being said, $39 – $40 for initial profit-taking makes good sense off and on the price chart in conjunction with using last week’s pattern low as an exit.
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.