Semiconductor giant Micron Technology Inc. (MU) - Get Report has been below a "death cross" on its daily chart since Sept. 24, with the stock in bear market territory down 47.1% since setting its 2018 intraday high of $64.66 on May 30. This steep decline in such a short time has the stock oversold on its weekly chart, but it appears the shares are trying to bottom above its 200-week simple moving average, or "reversion to the mean," at $28.89.
My call is to buy Micron down to my annual and semiannual value levels at $32.94 and $29.17, respectively. Micron is fundamentally "too cheap to ignore," with a P/E ratio of just 2.89. However, momentum (weekly stochastic) needs to rise as the company does not offer a dividend.
The stock set its all-time high of $97.50 back in July, 2000 and traded as low as $1.59 in November, 2008 as an "option on survival". I view an "option on survival" as a stock trading between $1 and $3 a share where you buy and hold realizing that your investment could be totally lost. The problem back then was the "crash of 2008," when investors encountered forced selling due to margin calls. When a stock falls below $5 a share, most brokerage firms do not let you in on the stock on borrowed money, called margin. This is what happened to owners of Micron just when they should have been bought. Do not own Micron or any stocks on margin during this market slide.
Analysts expect Micron to report earnings of $2.86 to $2.90 a share when the company reports earnings results after the closing bell on Tuesday, Dec. 18. The company's focus is memory chips and random-access DRAM products sold to PC and smartphone manufacturers. Demand can be cyclical and tough to predict and thus guidance will be more important than the results. Keep an eye on guidance on cloud storage as this is the growth segment for memory chips.
The daily chart for Micron
Courtesy of MetaStock Xenith
Micron had been on a strong momentum runup until trading as high as $64.66 on May 30. On the way lower a "death cross" formed on Sept. 24 when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices lie ahead. The stock closed at $45.16 that day and this led to the 2018 low of $33.71 set this morning, Dec. 17. The two lower horizontal lines on the chart are my annual and semiannual value levels at $32.94 and $29.17, respectively. The 50-day and 200-day SMAs are now at $38.54 and $49.10, respectively.
The weekly chart for Micron
Courtesy of MetaStock Xenith
The weekly chart for Micron is negative but oversold with the stock below its five-week modified moving average of $37.45 and above its 200-week simple moving average of $28.89 which is also the "reversion to the mean". The 12x3x3 weekly slow stochastic reading is projected to end this week at 16.03 well below the oversold threshold of 20.00.
Given these charts and analysis investors should buy Micron weakness down to my annual and semiannual value levels of $32.94 and $29.17, respectively, and reduce holdings on strength to my monthly risky level of $41.50.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.