Micron Stock Gaps Higher on Earnings, Then Fails Below Key Level

Micron Technology, Inc. (MU) beat earnings per share (EPS) estimates on June 29, and the stock gapped higher on June 30 to a high of $52.47. The stock opened July 1 below its monthly pivot for July at $51.97.

The semiconductor giant focuses on memory chips and random-access DRAM products sold to PC and smartphone manufacturers. Cyclical demand can be tough to predict. The key is demand from new internet-connected devices and from data centers.

Micron stock closed last week at $49.83, down 7.3% year to date and in correction territory at 18.6% below its Feb. 12 high of $61.19. The stock is also in bull market territory at 60.1% above its March 18 low of $31.13. The stock has a P/E ratio of 25.01 and does not offer a dividend, according to Macrotrends.

Micron stock suffered a crash of 49% from its Feb. 12 high of $49.83 to its March 18 low of $31.13. It then had a bull run of 76% from this low to its June 5 high of $54.82. Micron 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 a stock trading between $1 and $3 per share as an "option on survival," as you buy and hold shares realizing that your investment could be totally lost.

The daily chart for Micron 

The daily chart for Micron shows the formation of a golden cross on Aug. 2, 2019. A golden cross occurs when the 50-day simple moving average rises above the 200-day simple moving to indicate that higher prices lie ahead. This tracked the stock to its Feb. 12 high of $61.19.

Then came the 49% crash to the March 18 low of $31.13. The stock gapped below its 50-day simple moving average on Feb. 24. At the same time, it gapped below its annual pivot at $55.84. Micron stock broke below its 200-day simple moving average on March 11, setting the stage for the March 18 low of $31.13.

The V-shaped bottom tracked the stock up to its 200-day simple moving average on April 7. This average has been a magnet since this date. The stock traded as high as $54.82 on June 5, staying shy of the annual pivot at $55.84. Micron stock is between the 200-day simple moving average at $48.91 and its monthly pivot for July at $51.97.

The weekly chart for Micron  

The weekly chart for Micron is neutral, with the stock above its five-week modified moving average of $48.73. The stock is also above its 200-week simple moving average, or reversion to the mean, at $40.00. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 68.40, down from 70.73 on June 26.

Trading strategy: Buy Micron stock on weakness to its 200-week simple moving average at $40.00. Reduce holdings on strength to its monthly and annual risky levels at $51.97 and $55.84, respectively.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. The annual levels remain on the charts. The monthly level for July was based upon the last nine monthly closes, the third quarter level was based upon the last nine quarterly closes, and the second half 2020 level was based upon the last nine mid-year closes. New weekly levels are calculated after the end of each week.

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 shares 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 their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting 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. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.