Micron Technology (MU) Nears Major Breakout

Micron Technology, Inc. (MU) stock has woken up from the dead and is now challenging 2018's multi-decade high in the mid-$60s. Accumulation has already risen above its 2018 peak, setting the stage for a breakout that clears the last major hurdle before July 2000's all-time high in the upper $90s comes into view. However, a rally into that lofty level will require another 50% upside, taking as long as two to four years depending on market conditions.

Key Takeaways

  • Micron stock is testing 2018 resistance in the mid-$60s.
  • The company has underperformed semiconductor benchmarks in 2020.
  • A breakout predicts a rapid advance into the upper $70s.
  • The stock is still trading more than 30 points below the 2000 internet bubble high.

The stock has underperformed PHLX Semiconductor Index (SOX) by a wide margin in 2020, gaining around 15% compared to SOX's 39% year-to-date return. Micron is also one of the few big tech names still trading below the internet bubble peak, thanks to the nature of DRAM memory prices, which are vulnerable to economic upturns and downturns. The rally is good news for all of us, adding to evidence that growth in the post-pandemic world will be impressive.

Barron's is taking credit for the rally after a bullish article, but the stock turned higher right after Election Day, when speculation on the Biden presidency kicked into gear. Institutional activity has also been picking up, with hedge funds run by Seth Klarman and David Tepper opening or increasing positions. And we can't rule out the impact of a recent Department of Justice settlement with United Microelectronics Corporation ADS (UMC), which was accused in 2018 of stealing company trade secrets.

Wall Street consensus on Micron stock has improved in recent months, with a "Moderate Buy" rating based upon 17 "Buy," 5 "Hold," and 1 "Sell" recommendation. Price targets currently range from a low of $35 to a Street-high $100, while the stock is set to open Tuesday's session right at the $61 median target. While this mid-range placement suggests that Micron stock is fully valued, positive sentiment could add to share price gains in coming weeks.

A fully valued stock is a security whose price, analysts believe, reflects its full and fair value. It is the market's recognition of the company's underlying fundamental earnings power, and therefore, the stock is unlikely to rise further in price, nor to fall much either. If the security's price does go up from its fully valued price, it would be considered to be overvalued. If the price goes down, it would be undervalued.

Micron Monthly Chart (2000 – 2020)

Chart showing the share price performance of Micron Technology, Inc. (MU)

Micron stock got crushed after posting an all-time high in the upper $90s in 2000, dropping into the single digits in 2002. It booked sub-par gains during the mid-decade bull market and turned south once again in 2006, breaking the prior low during the 2008 economic collapse. The multi-year downtrend ended at $1.59 in 2009, giving way to a shallow advance that tested new support successfully in 2011.

A rally into 2014 stalled in the mid-$30s, marking resistance into a November 2017 breakout that ended at the .618 Fibonacci selloff retracement level in March 2018. The uptick into the first quarter of 2020 reversed about three points below that barrier, while the stock has now returned and is engaged in a second breakout attempt. Meanwhile, price action since 2018 has carved a symmetrical triangle, with the recent breakout favoring higher prices.

Indicators are also telling a bullish tale, with the on-balance volume (OBV) accumulation-distribution indicator lifting to a multi-year high. Meanwhile, the monthly stochastic oscillator looks ready to surge into a well-defined buy cycle after nearly two years of choppy sideways action. In turn, these tailwinds suggest that the door is now wide open to a rally that reaches the .786 retracement in the upper $70s.

A symmetrical triangle is a chart pattern characterized by two converging trendlines connecting a series of sequential peaks and troughs. These trendlines should be converging at a roughly equal slope. Trendlines that are converging at unequal slopes are referred to as a rising wedge, falling wedge, ascending triangle, or descending triangle.

The Bottom Line

Micron stock is attracting strong buying interest and could break out above the 2018 high, setting up an eventual test at the all-time high in the $90s. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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