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Micron Has Been on a Two-Week Tear; Here's the Trade Setup Before Chipmaker's Earnings Report

Analysts like the Boise, Idaho, company, which reports after the close. Here's a look at the charts.

FedEx  (FDX) - Get FedEx Corporation Report may be stealing the earnings headlines early on Wednesday, but Micron  (MU) - Get Micron Technology Inc. Report is set to take the spotlight when it reports its quarterly results after the close.

The Boise, Idaho, chipmaker's stock continues to barge its way to 52-week highs, as analysts continue to up their price targets and ratings in anticipation of an improving memory market. Are they too early?

The recent call from Morgan Stanley seemed pretty level-headed. The analyst lifted his price target to $56 from $48 but affirmed a hold rating on the stock. He reasoned that while memory trends are improving, management indicated earnings pressure for the coming quarter.

That said, the call from Morgan Stanley comes alongside RBC analysts calling for a bottom in memory pricing, two $80+ price targets for Micron and Needham’s $70 price target, all issued in the past two days.

I am concerned when a stock rallies so hard into the print. It makes it hard for a company to top what has become rather lofty expectations, and oftentimes it sets the stock up for a fall.

Let’s take a look at the stock’s technical setup ahead of the report.

Trading Micron Stock

Daily chart of Micron stock. 

Daily chart of Micron stock. 

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The daily chart is above and the weekly below. As you can see above, the $44 to $45 area was resistance in the first and second quarters, which eventually led to a breakdown in the stock price.

After bottoming at $32 in May and June, Micron stock eventually put together a strong recovery. After temporarily breaking through the $44 to $45 zone several times, MU stock made a powerful move through this area in October and found it to be support earlier this month.

That led to a big-time breakout over downtrend resistance (blue line), and Micron stock has now enjoyed a seven-day rally of 13%. You can see why some traders hesitate to take a long position ahead of the earnings.

Weekly chart of Micron stock. 

Weekly chart of Micron stock. 

The three-year weekly chart for Micron stock is much cleaner than the daily chart. Rising uptrend support (blue line) was able to guide MU higher, until it broke out over $50, a key level over the past few years.

If the post-earnings move is a decline, I would love to see $50 hold as support. Below puts rising uptrend support in play near $47.50. Below that and the $44 to $45 area from the daily chart will be on the table.

If Micron stock rallies after the report, let’s see if shares can rally to $57. Above it puts $60+ on the table.