It can be hard to take today’s headlines and news reports at face value. But when it comes to Micron Technology (NASDAQ:MU), appreciating what the MU stock chart is saying to investors is worth listening too. Let me explain.
Most investors with even a passing interest in the stock market knows semiconductors from Intel (NASDAQ:INTC) to Nvidia (NASDAQ:NVDA) have been under increased pressure since 2018 due to ongoing U.S.-China trade war risks. Again, that’s not a revelation. And MU stock has certainly not been immune to those concerns.
Shares of Micron are down about 33% since they notched their relative high in May 2018. Maybe worse, unlike those other stocks which have scored fresh all-time-highs over the past year, MU also sits roughly 55% under its own high set back in 2000.
But this week did get off on the right foot for Micron and its peers. On Monday — as a parting gesture at the latest G-7 meeting — POTUS offered some encouragement for investors as he announced China would be willing to resume trade talks.
Not surprisingly and following last week’s dizzying market losses, with the semiconductor sector having significant exposure to China, MU stock, INTC, NVDA and others like Advanced Micro Devices (NASDAQ:AMD) all rallied. Yet in a session which saw the S&P 500 index gain just over 1%, the performance of Micron and the rest of the group mostly mirrored the broader market versus securing larger gains that one might reasonably expect given the circumstances.
What’s the meaning of the muted price reaction to the latest breaking news in MU and the semiconductor group? Bottom line, Wall Street is having a problem buying and believing what the President says from one day to the next. And I can’t say that I don’t blame them. On the other hand, the good news for MU stock investors is the price chart is pointing to a trade war which will be won by bulls in the months ahead.
MU Stock Monthly Price Chart
Similar to our Mr. Trump, a price chart can be untruthful. But longer-term, the track record reflects a means to investing in the market which works. And along those lines, the monthly chart of MU stock is shaping up nicely for bullish investors.
Since last May’s relative high, Micron stock has been putting together a healthy-looking corrective pattern with price action on the right side and upper half of the base. With two higher highs and one higher low in place and a supportive-looking stochastics set-up, there’s good reason to be optimistic of new highs in the coming months, without being overly hopeful.
For like-minded MU stock bulls who want to position for a rally, I have two strategies to consider.
The first is a traditional long position in Micron shares with a stop-loss, if the pattern begins to deteriorate technically. Specifically, if a purchase is made at current levels, I’d exit MU stock if shares drop below $40.30.
This strategy amounts to roughly 5% exposure in MU stock. It also pulls the plug on price action which penetrates the chart’s denoted black lateral line. In relation to last month’s large doji candlestick, recent smaller doji’s, as well as the base’s 50% retracement level, this price level looks like enough leeway in MU without being married to the position.
Alternatively — and for investors familiar with options — being a bit more committed to a long MU stock position and not wholly reliant upon the price chart is possible with a collar position. With this spread’s reduced and limited risk, longer-term traders can stay the course with an eye on the upside, prevent getting hammered on weakness — and even a much stronger position to buy on weakness and accumulate shares when others are fleeing.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Micron (MU), Advanced Micro Devices (AMD) and their 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.