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MU Stock – Micron Technology Investing Strategy


Jan.04.2017

MU Stock Overview - Micron Technology, Inc.

We bought into Micron Technology's MU stock back in May 2016 when its price broke above the daily Ichimoku cloud.  We argued that at the time, there was an oversupply of memory -hips with a whole lot of companies in the business of making them.

However once Micron started manufacturing 3D NAND flash memory, released new SSDs, and started supplying new GDDR5X memory chips for Nvidia's new 1080/Titan graphic cards, things started to shake up.

We predicted that as the memory supply leveled out, their stock price could significantly increase. An they indeed did so. Now the question is, what is next for the MU stock?

 

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Whether you already own MU stock shares, or are just looking into getting in, we need to look at the 3 points of the IDDA approach to see where we stand.

1- Technical Analysis - MU Stock

Medium Term: After breaking above the daily Ichimoku cloud, the MU stock price has been on a rise for over seven months. However, it hit the 50% Fibonacci retracement level during the final trading week of 2016. This zone, which acted as a support back in 2014, has now become the new resistance.

MU Stock - Daily Chart Technical Analysis MU Stock - Daily Chart Technical Analysis

 

MU stock price has a history having difficulty breaking above key Fibonacci retracement levels. We saw similar types of pullbacks when the price reached the 23% and 38% Fibonacci retracement levels respectively.

In our investing group, we took partial profit from our long-term MU position when the shares hit $23 the final trading week of 2016.

 

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Now the MU stock is supported by the 38% Fibonacci at 19.33, which coincides with the upper band of the Ichimoku cloud.

Long-Term: On the other hand, looking at the monthly chart, the MU stock price has yet to break above the monthly cloud, with the future cloud turning flat/ red. A break above the monthly cloud could open doors for further gains, towards 29.97, 45.12, 51.60 and 77.69 in long-term extension.

MU Stock - Monthly Chart Technical Analysis MU Stock - Monthly Chart Technical Analysis

2- Fundamentals: MU Stock and the Battle of Memory 

First things first, let's learn a bit about Micron Technology and their MU stock.

Who the heck are they? According to their website, Micron Technology is a world leader in memory and semiconductor technology offering the industry's broadest portfolio of silicon-to-semiconductor solutions.

They've had plenty of experience with bad years, both financially and in the stock market. However in 2016, they managed to pull themselves out of the slump.

Who are their competitors? Their main competitors include Samsung and SK Hynix Inc in the memory chip making world. These three accounted for 90% of market share in 2014. This reversed in 2015, when memory chip prices fell again, lowering the stock prices for Micron and its competitors. On the other hand, China is trying to get in the game, aiming to build up its domestic semiconductor industry. Both SK and Micron received offers from China in 2015.

What are they doing differently? Not much really. The main competitive edge is the fact that there are high barriers to entry in memory chip production. This reduces the threat of new entrants taking market share and profits away from Micron. Also,  rising memory prices are boosting Micron’s revenues and earnings.

How are their finances doing?  Not so good. In fiscal 2016, revenue dropped 23% year over year. Operating profit fell from $3 billion to $168 million for a 94% reduction. Unadjusted earnings fell from $2.47 per share to a negative $0.27 per share. Trailing free cash flow was brutally negative, to the tune of $2.6 billion.

Then why are their stock prices going up? Improving market trends. Even though their financial figures are among the worst Micron has seen in the last decade, MU stock price gained 60% in 2016. Memory-chip prices not only stabilized in 2016, they actually increased dramatically.

What could stop their growth? China. Micron’s CEO Mark Durcan worries that Chinese chipmakers might flood the world market and wipe out competitors, just as they did with solar panels a few years ago.

What could help them grow? Intel. This summer, there was talk of Micron being acquired by Intel Corporation or China.

It's interesting to note that MU stock price has been showing similar movements as  Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA). We went all in both of them back in 2015, gaining massive profit. And we continue to see massive room for gain in all of them later in 2017. That is, after a potential market correction we could see in Q1.

 

3- Market Sentiment

 

As per our technical analysis above, the MU stock price remains way under-valued from a long-term perspective. However from a medium-term point of view, it could face yet another pullback at 50% Fibonacci level, creating an opportunity to buy.

Furthermore, there has been a net reduction of about 19 million bearish trades in MU stock, while its shares continued to make new highs. This could be an indication that the majority of market participants don’t think the stock has topped out yet.

However, with a potential of a political instability coming up in Q1, we could see a pullback across the stock market, which could include the MU stock price as well.

MU Stock - Investing Strategy

Putting the technical, fundamental and sentimental points of the IDDA approach together, there are different investing scenarios for MU stock based on your risk tolerance, published in our investing group.

Here are Invest Diva's calculations for important approximate levels for MU Stock to keep an eye on:

 

Support Levels Turning Point Resistance Levels
15.59 19.33 25.46
19.33 22.55 29.97

 

Want to leanr more about Ichimoku? Check out my new book, Ichimoku Secrets

 

xoxo

Kiana 喜愛成
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