In a market made up of stocks, Micron Technology (NASDAQ:MU) is one known to march to the beat of its own drummer. But in today’s market, is now a better time to buy, sell or hold off on MU stock? Let’s explore what’s happening off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
Despite a punishing novel coronavirus detour earlier this year, 2020 has turned into a standout year for the Nasdaq Composite index. On the back of influential and dazzling rallies in Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA) and others, the index has soared to new highs and returned more than 23%.
No doubt investors can thank the Nasdaq’s strong gains to both a loose-handed, generous Fed and technologies that we are seemingly unable to live without. Yet, the combination hasn’t exactly helped DRAM and NAND memory giant Micron.
The MU stock price is down about 7.5% year-to-date. It could be worse though. And it was, by a couple handful of percentage points until Goldman Sachs marched in this week bullishly banging the drum for the shares. So, what’s all the noise about and why are investors more than idly listening to the broker?
Goldman’s Toshiya Hari raised Micron from neutral to buy this week on indications of supply discipline and price stabilization in the company’s memory markets. Under-performance in MU’s share price also played a factor. As well, the firm sees a favorable shift in supply/demand balance helped by a larger mix of 5G smartphones entering the market in 2021.
MU Stock Monthly Price Chart
If there was a weak spot in the upgrade, it may have been the failure by Goldman to also boost its price target on the shares. The broker opted to maintain its $58 price on Micron. Appreciatively, based on what we’re seeing on the price chart of MU stock the price estimate looks fair until proven differently.
Technically — and for the better part of two years — Micron’s price action has taken on the spirit of a loose triangular consolidation pattern. On the illustrated monthly chart I’ve taken the liberty of depicting two triangles based on extremes, as well as opening/closing price levels.
Currently, a narrowing of the still-volatile price action has Micron shares positioned above the triangle’s apex near $45. That’s modestly bullish. However, shares still face the tighter pattern’s overhead resistance line near $52.50. The looser formation’s resistance comes in around Goldman’s $58 price target.
Good Reasons for Remaining Cautious
To be sure, shares could have their work still cut out for them despite this year’s relative and absolute price weakness. What’s more, with today’s unproductive stochastics setup, MU investors may be looking at another pivot low forming in the wider triangle. That could result in Micron trading down in the mid-to-high $30’s before pattern resistance is fully challenged and hopefully overcome.
If what’s been described sounds like a warning to back off from buying Micron stock, it is. And obviously there are a couple good reasons for remaining cautious. But charts are also fluid. And conditions can be very quick to change in a name like MU. While Micron has been a dog in 2020, shares do have a history of working volatility lopsidedly to the advantage of bulls.
Bottom-line, for technical-oriented traders I’d suggest monitoring Micron shares for the time being. If a breakout above $52.50 occurs along with a more supportive-looking stochastics, a purchase of the stock or a bull call spread on the expectation of a fast rally towards $58 to possibly 2020’s high near $61.50, makes sense.
As for investors wishing to bypass the shortcomings of charts and use Micron’s erratic price volatility consistently to their advantage over time, a dynamic collar on MU stock is a favored way to participate on a risk-adjusted basis.
Stocks owned: On the date of publication, Chris Tyler holds, directly or indirectly, positions in Micron (MU) and MU derivatives.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.