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Micron Technology has Turned a Corner, Could Target $90

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The two-quarter slide in Micron Technology (NASDAQ:MU) has finally ended. Despite taking prices of the semiconductor company down by 32%, the bear market didn’t ultimately derail the secular bullish trend. With buyers now back in control of MU stock and a powerful tailwind blowing, it’s time to re-enter.

Micron (MU) logo on a mobile phone that's on a table
Micron (MU) logo on a mobile phone that's on a table

Source: Piotr Swat / Shutterstock.com

Today I want to look at how the recent relative strength burst from the tech sector and semiconductors will aid Micron’s recovery bid. Then, we’ll take a closer look at MU stock to chronicle the recent trend reversal and map out the price levels for what to watch moving forward.

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Chip Strength is Tailwind for Micron

Nearly every stock has struggled to some degree over the past two weeks, but there’s a massive divergence between the best and the worst. You can find a few market darlings that remain at or near record highs. Thus far, the Covid-19 omicron variant has proven powerless to dent the optimism surrounding them. Nor are investors concerned over how a quicker pace to the Federal Reserve’s taper may adversely impact them. On the other hand, some areas of the market have been utterly destroyed. Fortunately, Micron finds itself in the former camp.

You can attribute part of its resilience to the muscle-flexing in the technology sector and semiconductor industry.

Consider the Vaneck Semiconductor ETF (NASDAQ:SMH) chart below.

Semiconductor ETF (SMH) stock chart with bullish uptrend.
Semiconductor ETF (SMH) stock chart with bullish uptrend.


Click to Enlarge

Source: The thinkorswim® platform from TD Ameritrade

How’s this for a feat of relative strength? SMH hasn’t had a single close below its rising 20-day moving average since all the drama began two weeks ago. And even on Thursday, when it looked as if bears would finally score a victory, the entire market rebounded, boosting SMH alongside it.

If you’re a believer that strength begets strength or that a trend in motion stays in motion, then chip stocks are one of the best areas to get behind right now.

MU Stock Charts

Heading into November, the price trend of Micron was heading southbound in a hurry. Prices were stuck below all major moving averages, and all technical signals pointed toward lower prices. Then everything changed. And in this case, as in many cases, there wasn’t a single catalyst. Instead, selling pressure finally dried up and buyers succeeded in jamming prices back above the descending trendline and the 50-day moving average. With that, volume swelled and the rise went into overdrive. The speed at which we’ve reclaimed lost ground is impressive and should give buyers more confidence that the nascent uptrend has staying power.

Micron Technology (MU) stock chart with buy the dip setup.
Micron Technology (MU) stock chart with buy the dip setup.


Click to Enlarge

Source: The thinkorswim® platform from TD Ameritrade

With Thursday’s 2.7% decline, we’re getting a decent dip-buying opportunity. It’s the deepest dip since the trend reversed higher. Consider using $90 and then $97 as the next two upside targets. The implied volatility is high enough to make selling out-of-the-money put spreads tempting. So I’ll throw out two trade ideas, one conservative and one aggressive.

Conservative Idea: Sell the Jan $70/$65 bull put for 70 cents.

This is a bet that Micron stays above $70 for the next month. Your max loss is $4.30, and the max gain is 70 cents. The probability of capturing max gain is 84%.

Aggressive Idea: Buy the Jan $85/$90 bull call for $1.75.

You’ll be wagering that Micron will rise above $90 by expiration. The max loss is $1.75, and the max gain is $3.25. The probability of capturing max gain is 35%.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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