Micron Technology, Inc. (MU) reports fiscal third quarter earnings after Tuesday's closing bell, with Wall Street analysts expecting earnings per share (EPS) of $0.80 on revenue of $4.72 billion. The memory chip giant's stock rose nearly 4.00% after it beat second quarter estimates in March, despite a 20.6% decline in year-over-year revenue and a warning about DRAM and NAND chip volumes in the fourth quarter.
The broad sector has struggled since the PHLX Semiconductor Index (SOX) posted an all-time high at 1,605 in April, turning tail and failing a multi-year breakout after President Trump reinstated China tariffs. The industry has more to lose than American farmers if trade talks aren't reinstated after this week's G20 meeting between Trump and Xi, underpinned by China's commitment to build enormous chip capacity in the coming years.
MU Long-Term Chart (1993 – 2019)
The stock broke out above the 1988 high at a split-adjusted $2.60 in 1993, entering a powerful trend advance that went ballistic into the 1995 high at $47.38. It rallied above that resistance level in the first quarter of 2000, lifting to an all-time high at $97.50 just six months later. The internet bubble bear market took a heavy toll on the chip maker, dumping price to a nine-year low in the single digits in February 2003.
A bounce into 2004 stalled at 200-month resistance, marking a price level that ended two more recovery attempts in the next nine years. The first failure occurred in 2006, carving a lower high, ahead of a downturn that broke the 2003 low in January 2008. Selling pressure accelerated during the economic collapse, dropping the stock to the lowest low since 1997 and finally ending the eight-year downtrend.
The stock broke out above the 200-month exponential moving average (EMA) and 2006 high in 2013, generating a steady uptick that stalled in the mid-$30s in 2015. It fell to a three-year low in the single digits in 2016 but posted the second higher low since 2008, maintaining the long-term uptrend. That set the stage for a strong buying impulse that mounted the 2015 high in the fourth quarter for 2017. The rally posted a 17-year high at the .618 Fibonacci sell-off retracement level in March 2018 and failed a breakout attempt in May, completing a double top breakdown three months later.
The monthly stochastic oscillator entered the oversold zone in November 2018 and crossed into a buy cycle in February 2019, predicting at least six to nine months of relative strength. However, the signal failed in May after trade talks broke down, and the indicator is now pointed lower once again. This increases risk heading into this week's earnings report because it predicts that shareholders are prepared to dump positions emotionally, rather than rationally.
MU Short-Term Chart (2016 – 2019)
The 2018 decline ended in the upper $20s in December, yielding a weak bounce that ended below the 50% sell-off retracement level in February 2019. The stock has drifted lower since that time and is now consolidating about five points above the 2018 low, potentially bringing that support level into play during this week's confessional. It's a dangerous spot for long exposure, warning shareholders to hedge their positions ahead of the news.
The on-balance volume (OBV) accumulation-distribution indicator posted a multi-year high with price in June 2018 and entered an orderly distribution phase that has held high in the multi-year range. This resiliency reveals loyal shareholders and plenty of bottom fishing, in hopes that the rally will resume in the coming months. That's okay as long as investors realize that they've bought into a binary scenario that will be resolved through political decisions on the other side of the planet.
The Bottom Line
Micron Technology heads into this week's earnings release in defense mode, with the chip giant trading dangerously close to the deep 2018 low.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.