I recently wrote about going long Micron (NASDAQ:MU) stock, and it has since rallied more than 45%, so it paid very well. When I get this much profits this fast, I usually book most if not all of them.
This is not the same as saying to short the stock — it’s just the right thing to do while managing a successful active trading portfolio.
MU stock has been in a whirlwind, but that’s mostly due to outside factors more than any problems of its own. It and the rest of the chip sector are stuck in the line of fire during the U.S. and China’s economic war. The two nations are negotiating in the headlines, and stocks like Micron suffer the consequences.
In spite of this, most recently MU rallied $15 after the April correction. And it looks like it’s headed much higher.
MU Stock Could Reach $56 Per Share Soon
Even though the chart show another $9 in upside potential, it could first suffer a small dip along the way. So if I am fundamentally long Micron stock, I stay with it. But for the cautious shorter-term traders who prefer to be active, they better wait out the next dollar move before initiating a new position.
This recent rally brings it back to about the halfway point from the correction that started in May of 2018. This is often a natural resistance level. It also matches Fibonacci logic and the machines usually act on them. So MU stock on its way higher may still stumble here, but it should find support around $40 per share. I would chase it up once it clears the next $2.
Fundamentally, Micron stock is cheap but could get much cheaper. Just recently, it fell to under 3 price-to-earnings ratio. However Wall Street is convinced that this MU is a value trap and it has the tendency to lock people into it on the premise of it being cheap. So that alone is not a reason to own it.
The semiconductor industry as a whole has a bright future ahead. The world now demands more technology than ever, and this is a trend that will exponentially build from here. There are only a few suppliers for this technology and Micron is one of them.
Last night Intel (NASDAQ:INTC) reported a strong report so it’s more proof that these companies are thriving in spite of the headwinds. They are doing all they can in order to offset the effects of the political headlines that are wreaking havoc with the natural order of business.
The demand for Micron products and services can only increase, and since management is a proven winner, the stock will be higher in the future. Of course it will need the help of the overall stock market. MU won’t fall on its own, so if the market is higher in the future then so it is MU stock.
Since MU has a ton of value, it makes it a good candidate for selling options. This way traders can use the value to generate income without any out-of-pocket expenses.
For example I can sell the January $35 put and collect $1.20 per contract. This way I don’t even need a rally to profit. If Micron stock stays above my level, then I win 100%. The worst-case scenario is that I own the shares and break even at $33.80 per share.
Since the S&P 500 is near all-time highs, taking any bullish position is risky enough from that perspective. So I make sure that I don’t take full positions at these levels. This way I leave room to add in case markets correct. And I never risk more than I can afford to lose.