(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Micron Technology Inc. (MU) is on the cusp of a major breakout that would send its shares more than 16% higher from its current price of around $52.90, according to a technical analysis. Shares of the chipmaker have fallen sharply since the end of May, and a rebound could return the stock to its previous highs around $61.50. 

Options traders are similarly bullish. They are heavily betting shares will rise by more than 10%, with the calls outweighing the puts by more than 2 to 1 at the $55 strike price, supporting the bullish technical chart. One reason for the bullish optimism is the healthy outlook for the company in the upcoming quarter, as analysts boost their estimates. 

Bullish Technical Patterns

Micron stock has two powerful bullish indicators in the chart, suggesting shares are due to rise. The first is a bullish uptrend that has been in place since November 2016. In the past, each time the stock has come close to that uptrend, it has successfully bounced higher and is now testing support again. The second is a bullish technical reversal pattern—a double bottom—that may be forming in the stock. If the stock rises above a technical downtrend and resistance level at roughly $54—as the two bullish indicators suggest—a breakout would be triggered, sending shares toward $61.50. 

 

Relative Strength and Volume Signal a Bottom

The relative strength index (RSI) has been trending lower, but it is also near levels where the stock has historically found a rebound. Volume levels have also been steadily declining since the stock price peaked in May, and that would suggest selling pressure is waning. In two prior periods, the stock saw its volume levels fall as shares declined, leading to a run-up in the stock price, as sellers thinned out.  

 

Strong Earnings Outlook 

One reason why the stock may be gearing up for a run higher is the outlook for the upcoming fiscal fourth quarter looks very strong. Analysts are forecasting earnings growth of more than 64% on revenue growth of more than 34%. Even better, analysts have been boosting those estimates over the past month, increasing the earnings estimates by 5%, and the revenue estimates by about 3%. 

MU EPS Estimates for Current Quarter Chart

MU EPS Estimates for Current Quarter data by YCharts

So far in 2018, the stock has run up ahead of quarterly results for both the fiscal second and third quarters, with shares peaking around the time of the release. It would appear, based on the chart, the same may be about to happen again. 

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

 

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