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3 Semiconductor Stocks to Trade Ahead of Micron Earnings

Nicolas Chahine

Semiconductor stocks have been held hostage by the China-U.S. trade war for over a year. We now live in a connected world so the market fears are legitimate since most of the semiconductor stocks’ profit and loss statements depend heavily on what happens to the commerce with China. There are not only revenue repercussions but supply chain concerns. So the bullish thesis for the semiconductor sector has to include a reasonable resolution to the conflict. With so much on the line, I bet that the governments will eventually come to some sort of boring agreement that saves face for both sides.

Meanwhile there are semiconductor stocks to buy even here.

This week Micron will report earnings and this will matter to the entire chip sector as a whole. What they say about business going forward will resonate loudly throughout the charts of  Intel (NASDAQ:INTC), Nvidia (NASDAQ:NVDA), and Advanced Micro Devices (NASDAQ:AMD) to name just three. Today I dissect trading MU, AMD and INTC stocks.

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Micron (MU)

MU stock goes in and out of favor often among investors on Wall Street. It has always been a value stock, which is code for not getting the respect it deserves. So value alone is not reason enough to chase upside. Recently MU rallied above $48 per share and this week it may have the opportunity to prove that it belongs up here with its earnings report on September 26.

So on Thursday, the bulls have a chance to prove that they can hold $48 per share as forward support. If so, then the upside potential for MU stock can be another 10% or more. Since the short-term reaction to these events is always a coin flip, this is a binary trade when they report earnings. We don’t know what the company is going to say, nor do we know how investors will react to it. If Micron stock falls below $48 then it would be vulnerable to a 10% correction that would fill gaps below.

The MU event also offers opportunities to trade other semiconductor stocks like INTC and AMD. Those two are viable proxy bets to the MU earnings report.


Advanced Micro Devices (AMD)

AMD stock has been the chip champ for two years. It has out-performed even during times when the markets in general were falling. AMD is up 140% in two years which is five times better than its closest competitor.

This week, AMD stock has tightened into a point. Meaning there is a move coming but the direction is yet to be determined. If the reaction to Micron is positive then AMD can breakout from its $32 resistance zone. This could also reignite the rally to target $40 per share or more.  Conversely, if the bears are able to push AMD below its recent support near $29.20, then shares could fall another $2 from there.

This is all to say that there is an opportunity to trade AMD for the short term. Long term, it remains a buy in my book. So, I will buy-the-dip if it comes this week. Ideally, I would sell premium into the downside fear. For example I can sell the November 26th downside put for over $1 per contract. This would be a rinse-and-repeat trade for me, and I would reopen if the bears punish AMD stock this week.

Meanwhile, if I am long AMD stock as a long term investment then I would not change my stance just for the Micron earnings uncertainty. If adding a new position, I would employ a tight stop below $29. This way if it spikes then I’m I already on board, else I get stopped out with minimal damage.


Intel (INTC)

There is a similar setup in Intel stock, but I don’t like the overall body language of this stock. AMD has the advantage of Wall Street loving its current management whereas INTC management is in flux. Nevertheless the upside opportunity in INTC stock is at $53.50. If the bulls are able to take it above that they could cover the gap to 58 quickly. Conversely, there are gaps below that would bring INTC stock back down to is $47 neckline from just a few days ago.

The outcome of Intel stock this week just like AMD revolves around what happens on Friday morning when Micron trades its earnings results. Fundamentally, all three stocks belong at least at these levels, but the headline risk is still binary as it always is with earnings reports. Investors love to extrapolate the results of one company into another which is almost always a mistake. In any of these cases, I would wait for confirmation of the breakouts or breakdowns before chasing them.

Jumping the gun can be costly. These are momentum stocks so when they run they do it fast and long. So discipline is important when trading them especially for the shorter term. Value alone is not an argument for support so it’s more important to pay more attention to the actual technical levels on the charts.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.

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