Semiconductor giant Micron Technology Inc. (MU) - Get Report is recovering from a bear market decline of 56% from its 2018 high of $64.66 set on May 30 down to its Dec. 26 low of $28.39. Dec. 26 was a "key reversal" day which began a bull market run of 54% to its Feb. 25 high of $43.99.
My call is to buy Micron down to its annual value level at $38.66 as the upside is to the 200-day simple moving average at $44.06. On the flip side, a negative reaction to earnings causes a weekly close below $39.61 indicates risk to the 200-week simple moving average at $29.54.
Analysts expect Micron to report earnings of $1.62 to $1.67 per share when they report after the closing bell on Wednesday, March 20. Fundamentally, Micron appears to be "too cheap to ignore" with a P/E ratio of just 3.20, according to Macrotrends. Some on Wall Street are concerned about declining prices of memory chips. This concern spreads to slowing demand for smartphones as consumers have not been in the mood to upgrade recently. In China, there is a slowdown in the demand for data center applications. Others expect increasing demand for memory chips in the second half of 2019 and this could be reflected in forward guidance. On Monday, Standpoint Research upgraded Micron to buy. These differing opinions make the technical charts important to understand.
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 when the close 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 resulted in my semiannual value level at $21.78, my annual pivot at $38.66 and my quarterly risky level at $56.41. The close of $40.88 on Feb. 28 was input to my analytics and resulted in my monthly value level for March at $31.68. My weekly risky level at $44.46 is just above the 200-day simple moving average at $44.06.
The Weekly Chart for Micron
Courtesy of Refinitiv XENITH
The weekly chart for Micron is neutral with the stock above its five-week modified moving average of $39.61 and above its 200-week simple moving average or "reversion to the mean" at $29.54. Note that this key average was tested at the Dec. 26 low of $28.39 when the average was $28.88 as a buying opportunity. The 12x3x3 weekly slow stochastic reading is projected to end this week at 76.22 down from 79.05 on March 15 when it fell below the oversold threshold of 20.00. A close on Friday below $39.61 will cause a downgrade to a negative weekly chart.
Trading Strategy: Buy weakness to my annual pivot at $38.66 and reduce holdings on strength to the 200-day SMA at $44.06. On a negative reaction to earnings, buy weakness to the 200-week SMA at $29.54.
How to use my value levels and risky levels:
My value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based on the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level is changed each week; the monthly level was changed at the end of January and February. 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.
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.