Weekly Update: A Proven Trade Setup in MU Stock
The Nasdaq and S&P 500 indexes briefly made new highs this morning before retreating into the close.
It feels like the market needs some time to digest what just happened.
Last night’s humiliating debate made it abundantly clear that President Biden is incapable of a second term. Democrats are no doubt working on replacing him before November.
Who they select, how it transpires, and what shakes out over the next few weeks could have a significant impact on Wall Street’s expectations for the future.
Monday will be telling. But until then, let’s look at a new trade idea…
The company is Micron Technology, ticker symbol MU. Micron is a large-cap semiconductor manufacturer. But unlike Nvidia, it specializes in memory and storage solutions, not compute.
Micron reported earnings on Wednesday revealing a 2% revenue beat and earnings that were 29% above analyst expectations. Despite these numbers, MU shares fell 7% the next day.
My guess is that investors wanted to see a bigger surprise. Given the high demand for AI and record growth from peers like Nvidia, Micron’s 2% sales beat wasn’t enough to keep the momentum going.
But the news looks better than many realize. During the earnings call, Micron executives revealed that its high bandwidth memory is sold out for 2024 and most of 2025. Imagine if Tesla had pre-sold every car it will make this year and next. That would be huge news.
Out of 39 analysts covering the stock, 35 rate it a BUY or OVERWEIGHT. 2 have it as a HOLD and 2 UNDERWEIGHT. The stock has zero SELL ratings.
But what caught my eye was the chart setup.
As you know, I prefer stocks that “trade well.” These are names that tend to respect key moving averages, consolidate cleanly, and move swiftly on breakouts.
MU is just such a stock.
It trends well. It moves cleanly into new highs. And it respects past breakout areas.
We often areas that were resistance quickly become support when the stock pulls back. Let’s look at what Micron (MU) did back in November:
After a 5-month consolidation period, the stock broke through its $72 resistance area. It then retested this area in December where it served as support and launched MU higher.
The same thing happened in March…
A breakout above $90 followed by a quick burst higher, a quick retest, and then it took off.
Which brings us to today…
MU formed a textbook shallowing breakout pattern in April and May before breakout out on above-average volume. But the stock has now pulled back. It sits right on the previous breakout area that, if history repeats itself, should serve as support.
The nice thing about setups like this one is that risk is fairly small. Since we are buying off support where the stock should bounce, we don’t need to give it much room.
The 50-day moving average (red line on chart) is at $127 – just 3% below the current price. If MU gets below there, I would start to worry.
If it were me, I would buy here and place a sell stop order at $124. This will give Micron a little breathing room, but still represents a miniscule 5% risk on the trade.
MU is up 170% from its 2022 lows. It is a leading stock in the leading group in a strong bull market. The chance to buy it while only risking 5% is a dream setup for me.
Anything can happen. But great stock traders learn how certain stocks behave. They look for precedent then try to exploit these patterns with a favorable risk/reward ratio.
The chart below shows all three of the setups we just walked through.
Personally, I like our chances on this one.
Best wishes for your trading,
