Micron Technology, Inc. (MU) reports earnings next week, with analysts expecting earnings per share (EPS) of $1.05 on fiscal third quarter 2020 revenue of $5.05 billion. The stock ran in place after beating top- and bottom-line second quarter estimates in March and has added just four points between then and now, stuck around the midpoint of the first quarter decline. Even so, pre-earnings speculation is building, with the company having the potential to beat current consensus estimates, which range from $0.40 to $0.70 in EPS and $4.6 billion to $5.2 billion in revenue.
The PHLX Semiconductor Index (SOX) carved a dramatic recovery off the March low, completing a round trip into the first quarter high in early June. A breakout in the following session posted an all-time high at 2,030.47 before turning tail in a rally failure that reinforces range resistance around the psychological 2,000 level. Micron is well positioned to benefit from sector tailwinds, but growing concerns about DRAM prices have kept a lid on gains so far this quarter.
Wall Street has been mixed about Micron's outlook in the past three months, with upgrades from BoA/Merrill, Cascend Research, and Cleveland Research, counter-balanced by downgrades from Needham, Goldman Sachs, Wedbush, BMO Markets, and Cleveland Research, which flip-flopped in the middle of the quarter. U.S. government restrictions on Huawei have also weighed on Micron stock, with the potential loss of that revenue stream. Micron has offered few updates on quarterly progress, adding to uncertainty heading into the report.
Micron Long-Term Chart (1992 – 2020)
A multi-year bottom yielded a new uptrend in 1992, generating an impressive momentum-fueled advance that featured two splits into the 1995 high at $47.38. A 2000 breakout doubled the stock's value in less than six months, topping out at $97.50, a high that hasn't been challenged in the past 20 years. The subsequent decline gave up all of the gains posted in the final advance before finding support at a nine-year low in the single digits in the first quarter of 2003.
A slow-motion bounce through the middle of the decade made little headway, stalling in the upper teens, ahead of renewed selling pressure that undercut the 2003 low during the 2008 economic collapse. Selling pressure eased at $1.59 at year end, marking the end of the eight-year downtrend, ahead of a two-legged bounce that ended in the lower teens in 2010. It took three years to mount that barrier in a buying surge that ended in the mid-$30s in 2014.
An October 2017 breakout reached $64.55 in the second quarter of 2018, marking the highest high in the past two years, ahead of a rapid descent that reached the upper $20s at year end. The stock has traded within those range boundaries in the past 18 months and is currently situated right at the midpoint of the 2000 to 2008 and 2018 trading ranges. This signals a neutral outlook, with neither bulls nor bears controlling long- or short-term price action.
Micron Short-Term Outlook
The monthly stochastic oscillator eased from a buy cycle into a sideways pattern in June 2019, matching the neutrality of price action. This holding period won't last forever, but it looks like a bilateral scenario in which one side of the market will eventually get trapped in a dynamic trend move, higher or lower. Given the company's cyclical reputation, the short side looks like a better bet at this time, given rapid deceleration in the world economy.
The sideways pattern also contains elements of a symmetrical triangle in its early stages, perhaps delaying a breakout or breakdown for two or three more years. In turn, that would make all current positions little more than "dead money" because there are plenty of better buying and selling opportunities at this time. This is especially true given Micron's monthly chart, which has rarely rewarded long-term trend followers.
The Bottom Line
Micron stock has entered a holding pattern that might not budge after next week's earnings report.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.