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Micron Technology, Inc. (MU) shareholders have suffered through their fair share of ups and down over the years, with this highly cyclical stock reacting to all sorts of short- and long-term catalysts. Fortunately, this bilateral footprint may break down in 2020, allowing a breakout above 2018 resistance in the mid-$60s. More importantly, that rally will open the door to an assault on the all-time high, posted at the height of the internet bubble 20 years ago.
The majority of chip stocks look overextended and in need of a downturn following a dramatic uptrend that has lifted the PHLX Semiconductor Index (SOX) to an all-time high. However, Micron stock often goes its own way during broad-based declines, paying little attention to the price action in other corners of the semiconductor universe. This tendency could come in handy in coming months, with the decade-long economic expansion running into multiple headwinds.
MU Long-Term Chart (1990 – 2020)
The stock completed a double bottom reversal at a split-adjusted 70 cents in 1990, entering a historic uptrend that stalled in the upper $40s in 1995. It mounted that resistance level in the first quarter of 2000, lifting to an all-time high at $97.50 in July. Aggressive sellers took control when the internet bubble burst, carving a five-wave decline that ended at a nine-year low in the single digits in February 2003.
The stock acted poorly during the mid-decade bull market, initially stalling in the mid-teens in the first quarter of 2004. A 2006 breakout attempt failed, completing a broad double top, ahead of a slow-motion decline that broke 2003 support at the start of 2008. Selling pressure accelerated during the economic collapse, dumping Micron to the lowest low since 1992 in November.
That low marked the end of the eight-year downtrend and a historic buying opportunity, ahead of a strong bounce that reached 2004 resistance in 2013. Micron broke out into 2014 but failed the breakout one year later, highlighting the stock’s well-documented volatility. A secondary breakout in 2017 yielded a more bullish outcome, stalling in the low $60s in March 2018. Price action has posted a rounded correction since that time, with the uptick now situated within five points of resistance.
A Fibonacci grid stretched across the eight-year downtrend places the 2018 high at the .618 sell-off retracement level, while two declines have held support at the rising 50-month exponential moving average (EMA). The stock reached harmonic resistance once again in January 2020 and has held up remarkably well despite the coronavirus outbreak, which is significant due to Micron’s massive China and Asia exposure.
The monthly stochastic oscillator entered a complex buy cycle in January 2019 that hasn’t crossed into the overbought zone yet. This is fortuitous positioning because the strongest upside in the cycle often unfolds at the same time the indicator enters this lofty territory. Taken together with price action at the .618 retracement, the stock should attract the buying power needed to break this resistance and head for the .786 retracement in the upper $70s.
MU Short-Term Chart (2018 – 2020)
Buying power has kept up with price development since the last major decline bottomed out in December 2018, with the on-balance volume (OBV) accumulation-distribution indicator now within a stone’s throw of the prior peak. Meanwhile, a Fibonacci grid stretched across the 21-month correction places 2020 price action at the .786 sell-off retracement level, which marks the final barrier prior to a 100% retracement into the prior high.
This test looks incomplete due to Wednesday’s shooting star candlestick at the January high, suggesting that the stock will head into another test at 50-day EMA support near $55. With a little luck, a dip into the Feb. 4 gap between $54 and $55 will mark a low-risk buying opportunity, ahead of a breakout that allows the stock to clear 2018 resistance and take the next step on its multi-decade journey back to the 2000 peak.
The Bottom Line
Micron Technology stock has shaken off virus headwinds and could break out soon, potentially heading into the upper $70s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
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