MU Stock: Signs Point North
Micron Technology, Inc. (NASDAQ:MU) produces memory and storage devices for all of our electronic needs. The demand in this sector seems insatiable because the amount of data we consume only increases as the content we demand is ever-growing in size and quality. I would think that this would produce a linear relationship with MU stock, but that has not been the case.
Micron stock has a habit of infatuating investors and then breaking their hearts. This type of conduct is achieved as the price of this investment has a cyclical tendency that creates wealth and then destroys it. It seems like an endless cycle that continues to persist.
From 2000–2009, MU stock lost 98% of its value; from 2009–2015, Micron stock gained 2138%; and in 2015, MU stock lost 75%. These type of returns are probably a great reason to stay away from such an investment vehicle but, for traders, this can be quite a delight.
The key when dealing with an investment that faces such volatility is to define the factors that are detrimental in identifying when the trend has changed, and then to act appropriately.
The following Micron stock chart illustrates the factors I use to identify a turning point.
Chart courtesy of StockCharts.com
There are two key indicators on the MU stock chart above that were instrumental in identifying that the bear market in Micron stock had ended.
The first indicator came in the form of a technical pattern. The pattern is highlighted in blue on the chart above, and is known as a rectangle bottom. This pattern took six months to form and was completed when the price broke above the peaks that acted as a resistance level. The completion of this pattern was an indication that a trend reversal was in play.
The second indicator came shortly after the completed rectangle bottom, and it confirmed that the trend has indeed reversed. The second indicator is a golden cross, and this indicator is produced when a faster 50-day moving average crosses above a slower 200-day moving average. This signal indicated that a change in momentum had occurred, and that the bulls are now in control of MU stock.
These two indicators together confirm that a new trend toward higher prices has commenced. The only course of action would be to side with the path of least resistance, which is higher.
The following Micron stock chart illustrates the new trend toward higher prices.
Chart courtesy of StockCharts.com
The chart above is using a monthly scale in order to smooth out the trend and avoid any unnecessary noise that is caused by signals that are generated using smaller time scales.
There are two indicators on the chart above that are consistent with a bull market.
The first indicator is accomplished by using a simple trend line, and it is used to create an uptrend line by connecting the lowest price of the candlesticks pattern. This uptrend line was tested this month, and this level effectively supported the price of Micron stock.
The second indicator came in the form of a bullish moving average convergence/divergence (MACD) cross. The MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals.
The combination of these two elements confirms that the tailwinds pushing Micron stock are positive, and that the bulls are firmly in control. The trend toward higher prices will continue until a bearish pattern develops and indicates otherwise.
The Bottom Line on Micron Stock
I am bullish on Micron stock because I believe that a new trend toward higher prices has only begun. The signals generated from the price charts reaffirm my bullish view on MU stock and, as long these signals remain intact, so too will my view.