Micron Technology, Inc. (NASDAQ:MU) is displaying some interesting signals in recent days. Tuesday of last week marks the most important piece in that puzzle. The Nasdaq was toasted black on the day, and MU received a downgrade from Baird in the morning. And yet, somehow, the stock notched a key double bottom pattern on the chart out of that action and rallied as much as 9% intraday off the morning reaction levels.
That type of action is something to take strong note of, especially when we are seeing a series of blows to the Apple outlook (a major customer of Micron). That news keeps getting worse, and yet shares of MU are displaying increasing resilience.
Micron Technology, Inc. (NASDAQ:MU) shares have been crushed over the past 6 months, losing nearly half of their value in that time.
In many ways, the semi-space has been out in front of the broader tech space with this bear cycle. And the sell-side hate has been piling up much faster over the past two weeks than it had been back during the summertime when analysts should have been making these same downgrade calls.
In our experience, when you see a very sharp correction and then see a series of downgrades accompanied by resilient technical behavior, you are generally through most if not all of the near-term pain.
As Micron heads toward its fiscal Q1 numbers on December 18, there are few points to keep in mind when anchoring expectations.
First off, seasonality for the semiconductor space is oddly telling. For the past two decades, the SMH ETF closed higher in November 74% of the time. That’s more than any other month of the year. This time around, it will take a strong sprint higher in coming days to keep with that pattern.
Provided that doesn’t happen, we will be pushing that same seasonal force back potentially into December likely because of pressure from guide downs in end-market players, particularly Apple, as well as the affirmation from ASUS that the CPU shortage from INTC would likely remain in place into 2019.
Secondly, given that analysts have been late in downgrading the space, and we just saw a massive gap down accompanied by a fresh Baird downgrade of MU specifically, the likelihood is very strong that all the weak-handed speculative interest has already been expunged from the stock.
So, in short, we have positive relative strength, very low whisper expectations, and a complete lack of speculative interest as we approach earnings. That skews the reaction outcome distribution back in favor of new longs. It’s no guarantee, but it should represent a probabilistic advantage for the long side that we believe will show up in options pricing in the days ahead of the report. We will comment again on this story at that time.
Satellite Imagery
Micron Technology, Inc. (NASDAQ:MU) is, as the reader is likely no doubt aware, probably the most important DRAM play. Dynamic random-access memory (DRAM) is a foundational semiconductor memory form that stores each bit of data in a separate tiny capacitor within an integrated circuit. This is a straight binary process.
The company also provides NAND products, which are electrically re-writeable, non-volatile semiconductor memory, and storage devices. Between the two (DRAM and NAND), the company is a central weather gauge for the memory cycles that underlie a lot of the technology sector business cycle. So, it’s an extremely important stock to understand and follow – probably more than most people really understand.
In addition, Micron and Intel have been collaborating in a JV project called IM Flash Technologies that is primarily centered around developing and operationalizing 3D XPoint technology. Micron recently bought out the partnership from INTC and plans to implement the tech in 2019.
Micron Technology, Inc. (NASDAQ:MU) pulled in sales of $8.4B in its last reported quarterly financials, representing top line growth of 37.5%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($6.8B against $5.8B).