Analyst Flags Micron Buying Opportunity as Stock Tests Support

MU pulled back to a key trendline on news of a preliminary injunction against Chinese chip sales

Jul 5, 2018 at 9:09 AM
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Shares of Micron Technology, Inc. (NASDAQ:MU) stumbled Tuesday, as traders reacted to news that China temporarily banned sales of certain Micron chips in response to patent infringement claims from United Microelectronics Corporation and Fujian Jinhua Integrated Circuit Co. Those reports prompted weakness across the chip sector in the pre-holiday session, but MU is up 3.6% ahead of the bell this morning after the company said its fiscal fourth-quarter revenue would take only a 1% hit as a result of the ban.

In a note to clients this morning, Stifel Nicolaus analyst Kevin Cassidy said the Micron stock pullback "may prove to be a buying opportunity" -- an assertion that's supported by MU's proximity to its 160-day moving average. The stock's Tuesday low of $51.48 occurred just north of this supportive trendline -- currently docked at $49.67 -- which has cushioned Micron Tech's lows on several occasions over the past 52 weeks. 

In fact, according to Schaeffer's Senior Quantitative Analyst Rocky White, there have been three other instances in the past three years where Micron pulled back to within one standard deviation of its 160-day moving average after a lengthy stay above it. After those three prior signals, MU was trading higher 100% of the time 21 days later, with an average return of 27.77%.

Based on MU's Tuesday close at $51.48, a bounce of this magnitude would put the stock at $65.78 one month from now -- which would be a new 18-year high, supplanting the equity's May multi-year peak of $64.66.

However, it looks as though speculative players have been bracing for more downside. Put open interest on MU stands at 1.27 million contracts, which registers in the 97th percentile of its annual range, per Trade-Alert. Meanwhile, the 30-day implied volatility skew of 5.6% arrives in the 80th percentile of its annual range, as MU put options are carrying richer-than-usual volatility premiums relative to their call counterparts.

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