Buy Micron Technology (MU) down to its "reversion to the mean," which is the stock's 200-week simple moving average at $30.78. The stock has become "too cheap to ignore" as its P/E ratio is 2.96, according to Macrotrends. In addition, Micron's weekly slow stochastic reading shown on its weekly chart is declining toward 10.00. Readings below 10.00 on a scale of 00.00 to 100.00 would make the stock technically "too cheap to ignore."
Micron is consolidating a huge bull market rally of 594% from a low of $9.31 set during the week of Jan. 22, 2016 to a high of $64.66 set during the week of June 1, 2018. This was followed by a bear market decline of 56% to a low of $28.39 set on Dec. 26. From this low, the stock is up 16.9% with a gain of just 4.7% year to date. Micron set its 2019 high of $44.85 on April 3 and is in bear market territory down 26% since then. Given this volatility, daily and weekly charts become important to establish trading strategies.
Analysts expect Micron to earn 75 to 80 cents per share when they report after the closing bell on Tuesday, June 25. Citi Research reiterated its sell rating as guidance on the DRAM environment is weak and based upon simple supply and demand. The ban on Huawei is a drag on memory-chip demand. Perhaps guidance could be positive regarding data center growth and AI (artificial intelligence). There are 33 analysts who cover Micron, 18 have buy ratings, 11 have hold ratings and 4 have sell or underweight ratings.
The Daily Chart for Micron
Courtesy of Refinitiv XENITH
The daily chart for Micron shows the formation of a "death cross" on Sept. 24 when the 50-day simple moving average fell below the 200-day simple moving average, which indicated that lower prices would follow. The stock closed at $45.16 that day and this signal was in play when the stock traded as low as $28.39 on Dec. 26. The "death cross" was canceled when Dec. 26 became a "key reversal" day. This was confirmed when the close on Dec. 26 at $30.89 was above the Dec. 24 high of $30.35. The close of $31.73 on Dec. 31 was input to my proprietary analytics and its annual pivot remains at $38.66. The value level for June, which expires on June 28, is at $29.37. Note how the annual pivot lines up with the 200-day simple moving average at $38.72.
The Weekly Chart for Micron
Courtesy of Refinitiv XENITH
The weekly chart for Micron is negative but oversold with the stock below its five-week modified moving average of $35.19 but above its 200-week simple moving average or "reversion to the mean" at $30.78. Note that this key average was tested at the Dec. 26 low of $28.39 when the average was $28.88. This was a major buying opportunity. The 12x3x3 weekly slow stochastic reading is projected to end this week at 12.91 down from 15.20 on June 21. When this reading falls below 10.00, the stock becomes technically "too cheap to ignore."
Trading Strategy: Buy weakness to the 200-week simple moving average at $30.78 and add to positions at the monthly value level at $29.37. Its annual pivot $38.66 should be a magnet for the remainder of 2019.
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How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changed at the end of January, February, March, April and May. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
The close on June 28 is the second most important for 2019. This close is an input to my proprietary analytics and will generate new weekly, monthly, quarterly and semiannual levels.
How to Use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."