Buy the Dip on Micron Stock

MU stock is trading near a historically bullish trendline

Managing Editor
Apr 26, 2018 at 11:48 AM
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Micron Technology, Inc. (NASDAQ:MU) is trading higher today, up 5.2% at $50.09, catching a halo lift amid well-received earnings from chip sector peer Advanced Micro Devices (AMD). Prior to today's burst, Micron stock was mired in a steep pullback from its mid-March high at $63.42. If past is precedent, though, it could be time to bet on MU's next leg higher, as the stock is rallying from the site of a historically bullish trendline.

Specifically, the shares recently pulled back to within one standard deviation of their 160-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, after the previous two times MU stock pulled back to this moving average amid a broader uptrend, it averaged an impressive 21-day gain of 27.06%, and was higher both times.

Pullbacks MU

A rally of similar magnitude would put Micron stock just north of that aforementioned March peak, which represented an 18-year high. MU has already added 21% year-to-date, and has outperformed the broader S&P 500 Index (SPX) by 22 percentage points during the past three months. 

Although calls are still preferred on an absolute basis, put buying has picked up in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows MU with a 10-day put/call volume ratio of 0.48, which ranks in the 99th percentile of its annual range. This means traders have been buying to open puts at a faster-than-usual pace relative to calls during the past two weeks.

Echoing this, Micron's Schaeffer's put/call open interest ratio (SOIR) of 0.72 also ranks in the 99th percentile of its annual range, suggesting near-term traders have rarely been more put-biased in the past year. An unwinding of pessimism in the options pits could add fuel to the stock's fire.

Digging deeper, the May 50 put is home to peak open interest. According to data from the major options exchanges, there has been a mixture of buy-to-open and sell-to-open activity at this strike in recent weeks -- suggesting traders are split as to whether MU will manage to hold its own above $50 over the short term.

 

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