Micron (MU) Is Trading Above Its Semiannual Pivot

Micron Technology, Inc. (MU) is trading above its semiannual and annual pivots at $77.95 and $75.84, respectively. The stock gapped higher on Jan. 8 on a positive reaction to earnings reported after the close on Jan. 7. The company offered a cautious outlook, which caused the stock to slip from its Jan. 8 high of $84.16.

The semiconductor giant produces memory chips and random-access DRAM applications sold to PC and smartphone manufacturers. The key metric is demand from internet-connected devices and data centers.

Micron closed Monday, Jan. 11, at $78.67. The stock is up 4.6% year to date and is 6.5% below the post-earnings high. In the longer term, Micron stock is in bull market territory at 152.7% above its low of $31.13 posted March 18, 2020. The stock has a P/E ratio of 27.76 and does not offer a dividend, according to Macrotrends.

Micron set its all-time intraday high of $97.50 back in July 2000 and then 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 per share, where investors buy and hold the shares realizing that their investment could be totally lost.

The Daily Chart for Micron

The daily chart for Micron shows the formation of a golden cross on Nov. 3, when the 50-day simple moving average (SMA) rose above the 200-day SMA to indicate that higher prices lie ahead. This tracked the stock to its Jan. 8 high of $84.16.

The stock moved above its annual pivot at $75.84 on Jan. 4. Then came the earnings spike to the Jan. 8 high. Since then, Micron stock has been trading around its semiannual pivot at $77.95. The stock is well above its 50-day and 200-day SMAs, now at $66.69 and $52.78, respectively.

The Weekly Chart for Micron

The weekly chart for Micron is positive but overbought, with the stock above its five-week modified moving average of $70.94. The stock is also above its 200-week SMA, or reversion to the mean, at $45.01. Note how the 200-week SMA provided buying opportunities during the weeks of Dec. 28, 2018, and March 20, 2020.

The 12 x 3 x 3 weekly slow stochastic reading is overbought with a reading at 88.57. A month ago, this reading was 91.28, which is above the 90.00 threshold as an inflating parabolic bubble.

Trading Strategy

Buy Micron stock on weakness to its annual and quarterly value levels at $75.84 and $72.15, respectively. Reduce holdings on strength to its Jan. 8 high of $84.16. 

How to Use My Value Levels and Risky Levels

The closes on Dec. 31, 2020, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual, and annual levels. Each uses the last nine closes in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.