Micron Technology, Inc. (MU) has defied gravity in recent months, with shares gaining more than 46% so far in 2018 despite fears of a cyclical top in the semiconductor industry and Chinese trade tensions that have the power to affect foreign revenues. This outstanding performance has set the stage for the next leg of a round trip into the 2000 bubble high, a journey that has now taken nearly two decades to complete.

The stock turned sharply lower in the first half of the second quarter, dropping more than 18 points off the March high at $63.42, and took back those losses at a rapid pace into the end of May. It posted a bull market high at $64.66 at month's end and has spent the past two weeks carving the handle of a cup and handle breakout pattern that could attract intense buying power in the coming weeks.

The rally into March ended at the .618 Fibonacci retracement of the eight-year downtrend into 2008, with a breakout above that level opening the door to the .786 retracement level in the upper $70s. That marks the final harmonic barrier, ahead of a 100% retracement into the 2000 high near $100. It could take another two to three years to reach that lofty level, but no one is complaining, given impressive returns since the first quarter of 2016. (See also: Micron's Stock Seen Soaring to 18-Year High.)   

MU Long-Term Chart (1993 – 2018)

 

A multi-year consolidation yielded a 1993 breakout that caught fire into the second half of the decade, splitting two times during an advance that posted an all-time high at $97.50 in July 2000. The last wave of the uptrend carved an 89-point parabolic rally, while a two-legged decline burst that bubble, giving up 100% of those gains. The downtrend finally settled in the single digits in the first quarter of 2003, completing an 89% decline off the 2000 high.

A recovery wave into 2004 stalled in the upper teens, while 2006 and 2007 breakout attempts failed, generating bearish energy that powered a 2008 breakdown to a 15-year low at $1.59. Micron stock turned higher at the start of 2009, jumping back above $10.00 in 2010 and dropping into a long-term consolidation, ahead of a 2013 breakout that mounted four-year range resistance in 2014. That buying impulse ended in the mid-$30s at the start of 2015. 

The stock fell into the single digits in February 2016, carving a higher low ahead of a steady uptick that reached the highest high of the decade in October 2017. The bullish energy continued into the March high at $63.42, yielding a pullback followed by a bounce that has nearly completed a breakout pattern. Curiously, the monthly stochastics oscillator has been stuck in a bearish cycle since January 2018, generating a bearish divergence in otherwise strongly bullish technicals.

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MU Short-Term Chart (2017 – 2018)

 

A Fibonacci grid stretched across the rally wave that began in August 2017 organizes price action, with the decline into May 2018 bouncing at the 50% retracement while testing support at the March breakout above the November high. The rally wave stalled after trend followers got on board, yielding a rounded pattern that is completing a cup and handle. This 10-month view still shows unfilled gaps at $28, $36 and $51, adding to the bearish relative strength divergence.

On-balance volume (OBV) ended a long-term accumulation cycle in 2014 and turned lower into 2016, posting a higher low in the long-term pattern. It mounted the 2014 high in September 2017 and broke out during the May recovery wave. This bodes well for bulls, suggesting that they'll overpower sellers in the coming weeks. However, the bearish divergence and unfilled gaps add notes of caution, telling market players to watch for a change in character that might tilt the odds. (For more, see: Micron Surges on Intel Deal, $10B Stock Buyback.)

The Bottom Line

Micron Technology has carved a cup and handle breakout pattern at the .618 retracement of the 2000 to 2008 downtrend, with a breakout favoring a rapid advance into the upper $70s. (For additional reading, check out: Micron Has 'Storm Clouds on the Horizon': MS.)

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

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