Micron Technology, Inc. (MU) has underperformed the PHLX Semiconductor Index (SOX) and top industry names through mid-August while failing to reach the February high. Micron stock has now broken major support at the 200-day exponential moving average (EMA) for the second time this year and may have already entered the first downtrend since 2016. The initial downside target lies a few points above March's 15-month low near $30, which now marks a line in the sand that bulls need to defend at all costs.
- Micron stock may have entered a long-term downtrend in 2018.
- The stock just broke the 200-day EMA for the second time this year, indicating that bears are in control of price action.
- The new selling wave could eventually reach the mid- to low $30s.
The company warned that fiscal fourth quarter 2020 results will be weaker than "previously thought" at a KeyBanc investment conference this week. That negates June 29 guidance for earnings per share (EPS) of $0.95 to $1.15 and revenue of $5.75 billion to $6.25 billion. Deutsche Bank sounded the alarm immediately after the comments, downgrading Micron stock from "Buy" to "Hold." Worse yet, analyst Sidney Ho doesn't expect supply-demand for memory chips to improve until the second quarter of 2021 at the earliest.
The stock hasn't posted a new high since May 2018. A recovery wave into February 2020 stalled within three points of the prior peak, carving a lower high within a massive topping or consolidation pattern between the upper $20s and low $60s. A large-scale downdraft could now complete this bearish price structure, in line with Micron's long-term tendency for vertical boom and bust cycles.
Earnings per share (EPS) are calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that are adjusted for extraordinary items and potential share dilution.
Micron Technology Long-Term Chart (1990 – 2020)
Micron stock charged higher in the 1990s, stalling in the upper $40s in 1995. It broke out above that level in 2000, posting an all-time high at $97.50 in July. The subsequent downturn found support in the single digits in 2003, while a recovery wave into 2006 booked minor returns. It broke support at the low during the 2008 economic collapse, settling at a 16-year low that finally ended the long-term downtrend.
The uptrend into the new decade carved three broad rally waves into the 2018 high at the .618 Fibonacci selloff retracement level. The stock fell more than 30 points into December, successfully testing 2017 breakout support in the mid-$30s. It hit that price level again in March 2020, highlighting the importance of this trading floor in coming months. The broad pattern has now carved a lower high and a higher low, forming the outline of a potential triangle pattern.
A triangle is a chart pattern depicted by drawing trendlines along a converging price range that connotes a pause in the prevailing trend.
Micron Technology Short-Term Chart (2018 – 2020)
The bounce into the second quarter of 2020 reversed at the .786 Fibonacci selloff retracement level, just like the 2018 to 2020 recovery wave. This highlights symmetry that could indicate a major change in trend. A July test reinforced resistance and fell to the 200-day EMA for the fourth time in two months before breaking down on Thursday in reaction to lowered guidance. Downside momentum could pick up from here, dropping the stock toward $40.
The on-balance volume (OBV) accumulation-distribution indicator shows healthy buying pressure that mounted 2018 resistance in July, posting an all-time high. However, OBV has now rolled over and looks set to test new support, with a breakdown ahead of price setting off a bearish signal for shareholders to take defensive measures and short sellers to consider new entries. The downside could speed up if that happens, dropping the stock into the shallow trendline near $33.
The Bottom Line
Micron Technology stock has broken the 200-day EMA for the second time this year and could sell off into the mid- to lower $30s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.