Micron's death cross: What lies ahead? (09/18/2024)

Hello, everyone! This week, we will focus on $Micron Technology (MU.US)$ , a leading provider of semiconductor memory solutions. The company's stock has recently exhibited a long-term bearish chart pattern just ahead of its earnings release. In this article, we'll explore the latest trends and examine the company's recent market activity.

What's new?

On September 16, 2024, Micron's shares dropped over 4% as a "death cross" bearish pattern appeared for the first time in over two years, signaling potential accelerated losses.

This decline follows a pessimistic assessment from Morgan Stanley analysts regarding the outlook for both Micron and the memory-chip market. They anticipate that earnings-growth expectations will peak and subsequently decline in the coming quarters, potentially resulting in a nearly 30% contraction in sector valuations.

While maintaining an equal weight rating on Micron's stock, the analysts have significantly lowered their price target from $140 to $100.

The "death cross" occurs when the 50-day moving average, a key short-term trend indicator, falls below the 200-day moving average, which tracks long-term trends. This crossover often signals to analysts that investors may see the recent selloff as more than just a temporary dip.

Recent exchange data shows Micron's short interest has risen to 35.98 million shares, the highest level since the peak of the COVID-19 panic in April 2020.

As noted by Morgan Stanley analysts, this increased bearish sentiment could be interpreted as a short-term technical positive for Micron's stock. Typically, once a bearish position is established, the next step for those investors would be to buy the stock to cover their positions. However, the analysts cautioned that, over time, fundamentals hold greater significance than technical indicators. They foresee a clear risk of an earnings recession looming for the memory-chip sector, as average selling prices are projected to decline into the next year.

Chart of the day

Trend analysis:

Micron's shares (MU) have demonstrated a steady upward trajectory since December 2022, peaking at $157 in mid-June 2024. However, since that high, the stock has been on a downward trend, declining more than 61.8% of its previous gains, as illustrated by the Fibonacci retracement tool on the weekly chart.

On the daily chart, the stock appears to have formed a head and shoulders pattern near its all-time high, indicating a shift towards a downward trend. Nonetheless, the price has recently found support at $85, having tested this level multiple times before rebounding.

Technical indicators:

● A "death cross" has occurred as the 50-day moving average (MA50) has just crossed below the 200-day moving average (MA200), signaling the possibility of a long-term trend reversal rather than merely a temporary pullback.

● Despite the price hitting a six-month low, several momentum indicators like the MACD and RSI remain above their previous lows, indicating a bullish divergence. This suggests the potential for a short-term price rebound.

● The stock has entered a consolidation phase, characterized by a rectangle pattern. Should the price break below this formation, it could indicate a continuation of the prior downward trend.

Next move?

Since reaching an all-time high in mid-June 2024, MU has entered a downtrend, retracing more than 61.8% of its gains over the past two years. The stock is currently in a consolidation phase, with the potential for a short-term rebound from a technical perspective. Traders should watch the critical support level at $85; a break below this threshold could indicate a continuation of the downtrend.

This presentation discusses technical analysis, other approaches, including fundamental analysis, may offer very different views. The examples provided are for illustrative purposes only and are not intended to be reflective of the results you can expect to achieve.

All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.