After months of declining, Micron Technology (NASDAQ:MU) stock may have finally found a bottom. The culprit? Nothing more than the biggest breakout we’ve seen from semiconductor stocks all year long.
With chip stocks back in the spotlight, buyers have finally seen both leaders and laggards in the space as fit to buy. And that bodes well for MU stock.
While I still find buying the components that are outperforming the easier path to profits, Micron does look healthier than at any time since early August. So, if you have a mind to cast a line, I can understand the enthusiasm.
To provide more context and explore some of the alternatives, I’ll give a deeper dive into the industry’s price performance. Then, we’ll analyze Micron from multiple time frames to see just how legitimate its bottoming attempt is.
Semiconductors Are Red-Hot
Just when you think chip stocks will finally cool, the opening bell rings, and buyers swarm for yet another session. With Monday’s 2.19% gain, the Semiconductor ETF (NYSEARCA:SMH) rallied for its eighth straight day in a row.
Overbought pressures are beginning to mount, but thus far, bulls have proven all too willing to chase. Nearly every day of the current advance, one constituent or another sees its share price balloon. Three trading sessions ago, Qualcomm (NASDAQ:QCOM) led the charge after destroying earnings estimates and laying supply chain worries to rest.
Today, Advanced Micro Devices (NASDAQ:AMD) jumped 11.38% on its highest volume session since August after announcing a deal with Meta Platforms (NASDAQ:FB). All told, AMD stock is up 42% over the past month alone.
This is the backdrop we’re dealing with. While Micron hasn’t reported any earth-shattering news of its own, the rising price tide and sweetening sentiment surrounding all things semiconductors have been enough to pull MU stock out of a downtrend. This is its best chance in months at starting a bona fide uptrend.
More on that in a minute. First, feast your eyes on the glorious rise of SMH. With the aforementioned eight-day run, The fund is now up 38% year-to-date. By comparison, the Nasdaq and S&P 500 are up 27% and 25%, respectively.
MU Stock Charts
The weekly time frame shows just how far Micron has retreated this year. From peak to trough, the stock dropped 32%, which is ugly on both an absolute and relative basis. On a bright note, we retraced nearly all of the post-November 2020 bump, which gives you a lower-priced entry point. I like how the old resistance zone near $65 became new support. Prices need to take out $75 to clinch the weekly trend reversal. Doing so will create a higher pivot high, officially ending the tyranny of the downtrend in MU stock.
While breaching $75 remains critical, the daily chart has already made strides by breaking above the 50-day moving average. The volume accompanying Monday’s 2.5% rally is also encouraging. Perhaps the most bullish omen is what’s transpiring in the RSI indicator. The momentum reading just hit its highest reading since February, suggesting strength is building beneath the surface.
That also makes this the strongest reversal attempt of the entire downtrend.
Two Trade Ideas
The options market provides two primary ways for bulls to play. First, for the high probability of profit, but lower payout route, consider the following bull put.
High Odds Trade: Sell the Dec $67.50/$62.50 bull put for 55 cents.
You’re risking $4.45 to make 55 cents with an 82% probability of max profit.
If you want a higher payout and are willing to accept a lower probability of profit, then try a bull call.
High Payout Trade: Buy the Dec $75/$80 bull call spread for $1.65.
You’re risking $1.65 to make $3.35 with a 30% probability of max profit.
On the date of publication, Tyler Craig was LONG QCOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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