Must-See Bull Signal for Micron

Traders should consider call options and bet on an MU rally

by Karee Venema

Published on Aug 2, 2018 at 1:35 PM
Updated on Aug 2, 2018 at 2:10 PM

The shares of Micron Technology, Inc. (NASDAQ:MU) have pulled back sharply from their mid-July highs north of $58 -- pressured by broader tech headwinds and a word of warning from Morgan Stanley, which said tariff uncertainty could create headwinds for semiconductor stocks in the fourth quarter. However, the chip stock is now trading near a trendline that's had historically bullish implications, suggesting it could be time to bet on MU's next leg north.

Specifically, MU stock is now within one standard deviation of its 160-day moving average after a lengthy stay above this trendline. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the four other times this signal has flashed over the past three years, Micron has gone on to average a one-month gain of 27.77%, boasting a 100% win rate. Another move of this magnitude would put the security near $67.44 for the first time since October 2000, based on its current perch at $52.78.

It helps that the 160-day trendline is currently located in the $50-$51 region, which served as a springboard for MU during an early July pullback. Just below here is the $49 region, home to Micron's +20% year-to-date return level, and its 200-day moving average.

micron stock chart aug 2

It's certainly an attractive time to bet on another MU rally with stock's short-term options. With earnings not scheduled until late September, the equity's Schaeffer's Volatility Index (SVI) of 39% ranks in the tame 24th annual percentile -- meaning near-term options are pricing in relatively low volatility expectations at the moment.

Plus, Micron has consistently rewarded premium buyers over the past year. This is based on the stock's elevated Schaeffer's Volatility Scorecard (SVS) reading of 95 (out of a possible 100), indicating MU has tended to make outsized moves, relative to what the options market was expecting.

 
 

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