Memory and storage semiconductor maker Micron Technology (NYSE: MU)
shares haven’t been participating with the benchmark S&P 500 index (NYSEARCA: SPY)
recovery nor the recent rise in the chip stocks tracked by the Market Vectors Semiconductors ETF (NASDAQ: SMH)
. The momentum was broken by the negative earnings reaction
and subsequent analyst downgrade
on shares of storage sector peer Western Digital (NYSE: WDC)
. The question is whether Micro is signaling a potential top to the SMH or simply a laggard providing an opportunity for investors to step in on pullbacks. A closer look at the deepest time frame chart technicals indicates the latter for nimble and risk-tolerant investors.
Q3 FY 2020 Earnings Release
On June 29, 2020, Micron released its third-quarter fiscal 2020 results for the quarter ending May 2020. The Company reported earnings of $0.82 per share versus consensus analyst estimates of $0.68 per share, beating estimates by $0.14 per share. Revenues rose 13.6& year-over-year (YoY) to $5.44 billion falling short of the $5.05 billion consensus estimates. The Company raised its fiscal Q4 guidance for the ending August 2020, to an EPS range of $0.95 to $1.15 versus $0.80 consensus analyst estimates and revenues in the $5.75 to $6.25 billion range versus $5.51 billion analyst estimates. Management noted the extremely strong demand in data centers and laptops as a byproduct of stay-at-home mandates bolstering remote work and learning trends. The Company noted the demand for smartphones, consumer electronics, and automobiles to be lower in 2H 2020 but expects economic momentum to rebound into 2021. Shares gapped to peak out at $54.20 and chop down to the $48.28 Fibonacci (fib) level.
Storage Devices Versus Storage Chips
Seasoned traders are aware of the WDC and MU pairs trade as these two tend to move together in lockstep nearly every trading day. This is evidenced by the upside gap WDC stock experienced on MU earnings gap, but also the gap down MU experienced on WDC earnings dumper. MU also tends to move with Advanced Micro Devices (NYSE: AMD) part of the time as well. The connection between WDC and MU lies in the core purpose of products which are storage and memory solutions. WDC has traditionally been a storage device play like Seagate Technology (NYSE: STX) with products ranging from legacy hard drives to flash memory drives under the SanDisk brand. Micro is a true semiconductor play as they manufacture DRAM chips. AMD is known for their central processing units (CPUs) and graphic processing units (GPUs). The SMH acts like a compass for the chip sector. The weekly close may indicate a potential top, which could put more pressure on sell fading MU shares. Nimble traders can play the shifting laggard reactions on opportunistic pullback levels like bumpers on a pinball table.
MU Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for MU stock. The monthly rifle chart triggered a market structure low (MSL) buy trigger above $45.57. The weekly rifle chart is currently in a make or break which will resolve into either a bullish pup breakout above the 5-period moving average (MA) $50.24 on a weekly stochastic cross up or a mini inverse pup as stochastic continues to fall and the 5-period MA crosses down through the 15-period MA. To illustrate the lagging status, we want to contrast the MU weekly with the SMH weekly rifle chart. Compare MU weekly chart to the SMH chart and its blatantly obvious that MU is a laggard since the SMH has continued to make new weekly highs for the past six weeks. The question is whether the SMH has put in a top and if so, then the selling may accelerate on MU. The weekly SMH formed a shooting star and the upcoming weekly candle close on Aug. 14, 2020, will set up the market structure high (MSH) sell trigger if it closes with a lower high. If so, then the low of this weekly candle is the MSH sell trigger one-tick below. If the SMH continues to make a new high, the MU becomes more tempting to play long as a laggard. This is because the monthly stochastic has just started to cross up to form a monthly pup breakout on MU. The key supports sit at the 5-period MA at $49.23 and 15-period MA at $47.62. This provides the road map for potential opportunistic pullback levels at the $47.62 monthly 15-period MA/fib, $47.00 fib and $45.57 weekly MSL trigger and sticky 5s price zone. Since the SMH is the headwinds, if SMH peaks and slips, then trail stops on MU should be administered the $44.00 fib level.
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