Micron Technology, Inc. (MU) shares may have completed a corrective pattern that could now yield a rally in excess of 20%, lifting the memory giant back to March and May resistance. More importantly, that buying impulse could mark the last stage of a larger-scale trading range, opening the door to the upper $70s. As a result, the current price level might offer a low-risk entry for both intermediate and long-term positions.
The stock charged higher after breaking out above 2014 resistance in the mid-$30s in October 2017, lifting into the mid-$60s in March 2018. It has been working off overbought technicals in the past five months, building horizontal support in the mid-$40s, well above last year's breakout level. Recent price action violated the 200-day exponential moving average (EMA) for the first time since August 2017, attracting committed buyers in a reversal that has set off intermediate buying signals.
However, these signals aren't strong enough to support a larger-scale breakout, at least not yet. That may come after monthly relative strength readings turn higher, ending a long-term sell cycle that has been in control since November 2017. As a result, market players should evaluate upside progress in the coming weeks because persistent strength could set off longer-term buying signals, typical of a breakout after a multi-month correction. (See also: Micron Stock Could Rally Into the Upper $70s.)
MU Long-Term Chart (1991 – 2018)
The stock turned higher at a split-adjusted 68 cents in 1991 after years of sideways action, entering a powerful trend advance that reached $47.38 in 1995. It mounted that resistance level in March 2000, hit an all-time high at $97.50 in July and reversed, joining other tech stocks in the broken bubble bear market. A 2003 bounce at a nine-year low at $6.60 failed to gain traction, stalling in the mid-teens in 2005.
The downtrend resumed in 2006, breaking 2003 support two years later and joining world markets in the economic collapse. The decline finally ended at $1.59 in November 2008, yielding a recovery wave that reached the low teens in the first quarter of 2010. It took more than three years to mount that resistance level, generating an uptrend that posted impressive gains into June 2014, when buying pressure fizzled out in the mid-$30s.
A 2015 breakdown trapped shareholders in a furious decline that ended in the single digits in the first quarter of 2016. A successful support test four months later marked a historic buying opportunity, ahead of a powerful uptick that has posted the strongest upside so far this century. The rally pierced 2014 resistance in 2017 and stalled at the .618 Fibonacci retracement level of the eight-year downtrend in March, giving way to an intermediate correction.
The monthly stochastics oscillator crossed into a sell cycle in November 2017 and is now accelerating through the lower half of the indicator panel. It is showing no signs of turning higher, which isn't surpassing because this technical gauge has reached the oversold level before turning higher in every sell cycle since 2004. As a result, it's best to focus on the intermediate opportunity for now, limiting exposure to the long-term uptrend. (For more, see: Is Now the Time to Buy Micron Technology Stock?)
MU Short-Term Chart (2017 – 2018)
The stock has carved a rectangular trading range since March, with support at $45 and resistance at $64. It bounced at support and the 200-day EMA last week, setting off a weekly stochastics buy cycle that should last into the start of the fourth quarter. This bullish crossover should support a high-percentage bounce into the low to mid-$60s, possibly setting off longer-term buying signals that support a breakout.
Price action since May 2018 has carved a small-scale Elliott five-wave decline, with a green trendline now aligned at the 50-day EMA near $52.75. A breakout will set off the next round of short-term buying signals, supporting an entry that could reach horizontal resistance. A relatively tight trailing stop is recommended after taking exposure due to headwinds still generated by the long-term sell cycle. (To learn more, check out: Introduction to Elliott Wave Theory.)
The Bottom Line
Micron Technology stock may have bottomed out and will likely now rally into the low to mid-60s. A turnaround in long-term relative strength at or near that level could also support a large-scale breakout that reaches the upper $70s. (For additional reading, see: Will DRAM Supply Dictate the Future of Micron?)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>