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Micron's Chart Hints at Chip Sector Improvement

Micron reported solid fourth quarter earnings after Tuesday's closing bell.
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Micron Technology (MU), a manufacturer of memory chips, reported fourth quarter earnings after Tuesday's closing bell. The report comes amid a decline in chip prices, as the market works its way through a supply glut. 

Micron earned $1.08 per share, on revenues of $6.06 billion. The company was expected to earn .95 cents per share on revenue of $5.3 billion.

Micron has been an underperformer this year. As of Tuesday's close, the stock was down 4.8% year to date. This compares unfavorably to the S&P 500, which has gained 3.24%, and the Nasdaq, which has gained nearly 30% so far this year. 

Micron vs. S&P 500 vs. Nasdaq 100. Chart by TradeStation

Micron vs. S&P 500 vs. Nasdaq 100. Chart by TradeStation

However, there is good news for Micron bulls. While the major indices have had a tough month in September, Micron has been climbing higher. The relative strength of this stock vs. the major indices has been impressive throughout September. 

This could bode well for Micron shareholders, as the chip inventory glut now seems to be priced in. 

How did this oversupply issue occur? According to DigiTimes, at the outset of the pandemic, companies stockpiled DRAM and NAND chips in preparation for possible shortages. 

This buildup in inventory has led to a decrease in demand, which is currently weighing on prices. Memory chip prices are expected to stay weak into next year. 

However, the bullish price action in Micron over the past month could be a hint at better times ahead. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.