Stock of the Week: Micron Technology (MU) Analysis. Earnings Gap Up

Hey everyone!

This week I am highlighting Micron Technology (Ticker Symbol MU) as my Stock of the Week.

MU showed Relative Strength during the market correction, forming higher lows and barely undercutting the 21 ema. This week MU reported earnings and gapped up out of the handle of a 36 week base.

This article will analyze the stock through fundamental and technical lenses and also go in-depth into how you could have traded this name. As always, your main takeaways from these articles should be about the process. The same setups appear again and again based on supply and demand.

Before we get into the analysis of MU make sure you are subscribed so you don’t miss any future articles.

Routines

MU has been on my radar for the last couple weeks after it started moving up the right side of the long term base. During the market correction, it continued to show strength and the computer-data storage group as a whole caught my eye.

MU also appeared in some of my fundamental scans given that it has posted triple digit earnings growth the past few quarters.

During the correction MU repeatedly stood out along with SIMO and PSTG as I went through my lists. From TC2000, MarketSmith, and Earnings Whispers I knew MU reported earnings Monday after the close.

After MU reported, it reacted strongly. I then moved it from my weekly focus list to my daily focus list for a potential entry on the 21st.

The Fundamentals

MU is part of the Computer-Data-Storage Group which is ranked 29/197 and as mentioned previously is one of the potential leadership groups with other notable names like SIMO and PSTG acting well.

MU has very strong growth fundamentals with triple digit earnings growth the past 4 quarters and sales growth at least 30% each quarter as well. Margins are strong and its ROE is at 17%.

Annual EPS estimates are impressive and would signal a breakout year. Unfortunately, the most recent estimate revisions are down, but the price action does not reflect that sentiment at the moment.

The trend in fund ownership is up overall over the past 8 quarters although we did see a drop during the recent base. I would like to see the trend reverse back upward the next time it is reported. 

The Setup

Monthly Chart:

On a Monthly chart you can see MU is not the normal IPO/New issue type of stock that I usually focus on. However, it is trending right near all time highs and is in a long term uptrend.

Weekly Chart:

On a weekly chart you can see the setup developing with a 10 month cup and handle forming after a strong prior uptrend. The handle formed over the AVWAP from the base highs and volume was drying up as the stock moved sideways before earnings.

Up the right hand side you see multiple weeks of high volume.

Daily Chart:

On the daily chart, you see the strong push up the right hand side with volume coming in as it broke the AVWAP from highs. MU also started a strong RS trend on 11/1 which was when it broke above the volume anchor set at the close of the 8/12 gap down day.

At this point, the stock was waiting for the earnings report to choose a direction.

Execution

After MU reported strong earnings it became a focus of mine that Tuesday.

Here is how the next few days went on a 5 minute chart.

Given the recent market conditions I held back from trading until 30 minutes had passed. I tried it on the undercut and reclaim of the AVWAP and then added as it broke out of the tight intraday VCP. My initial stops were at the low of the day which was a 2% risk on a 20% position.

The next day we had a slight gap down but MU held up excellently and closed strong. On Thursday it reconfirmed through the gap up day close and high.

Looking back on the trade I should have added to my position as it triggered another setup. This is one of the areas I am looking to improve upon in 2022

Key Takeaways

MU is a leading stock from a leading group and is on the verge of a significant breakout on a weekly and monthly chart. Fundamentally it has had 4 straight outstanding quarters and is expected to have strong EPS growth the next two years. The EPS gap up was the highlighted setup although you could have certainly started a position on the breakout through the gap up day close and high.

I hope you all found this helpful! Make sure you are subscribed so you don’t miss out on any future articles! Also please go ahead and share this article if you found it helpful!

Have a great weekend!

-Richard