Micron Technology, Inc. (MU) is trading higher by about 4% in Friday’s pre-market after beating first quarter 2021 top- and bottom-line estimates and raising second quarter earnings per share (EPS) guidance. The memory chip giant posted a profit of $0.78 per share, $0.09 higher than estimates, while revenue rose a healthy 12.2% to $5.77 billion, beating $5.66 billion expectations. The company now expects second quarter EPS results about 10% higher than previous consensus.
- Micron rallied overnight after beating first quarter profit and revenue estimates.
- DRAM prices are firming up and expected to be strong into 2023.
- The stock posted a 39% return in 2020.
- Bullish action around $80 would favor a rapid advance into the all-time high near $100.
DRAM (dynamic random access memory) chip prices are expected to firm up in 2021, with supply and demand finally coming back into balance. This is underpinning shares while inducing analysts to raise ratings and price targets. The stock is now trading just 15 points below the 2000 internet bubble peak at $97.50, finally closing in on a resistance level that was mounted years ago by the majority of the big tech universe.
Wall Street consensus on Micron stock is the most bullish in years, with a “Strong Buy” rating based upon 20 “Buy” and 1 “Hold” recommendation. No analysts are recommending that shareholders close positions, even though Micron posted a hefty 39% 2020 return. Price targets currently range from a low of $60 to a Street-high $105, while the stock is set to open Friday’s session about $6 below the median $88 target. A rapid advance into 21-year old resistance is possible with the lopsided configuration.
A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a “crash” or a “bubble burst.”
Micron Long-Term Chart (2000 – 2021)
A multi-year uptrend posted an all-time high at $97.50 in 2000 and rolled over in a steep decline that ended in single digits in 2003. The stock barely budged during the mid-decade bull market, setting the stage for a secondary downturn that ended at a 16-year low near $2.00 in 2008. That marked the end of the eight-year downtrend, ahead of a two-legged advance that stalled in the mid-$30s in 2014.
Persistent selling pressure into January 2016 reached 2013 support in the lower teens, attracting strong buying interest that underpinned a steady uptick into the prior high in 2017. The stock broke out immediately, lifting into the low $60s in the first quarter of 2018. The trade war ended the uptrend at that time, yielding a rounded correction that posted higher lows in December 2018 and March 2020.
The post-pandemic advance reached the February 2020 peak in November, setting off a quick buying spike that also completed a round trip into the 2018 peak. The stock broke out at the start of December, adding about 10 points before easing into a lateral consolidation that continued into the first week of 2021. Committed buyers emerged earlier this week, generating another breakout ahead of this morning’s bullish confessional.
The monthly stochastic oscillator has reached the most extreme overbought reading since 1993, but the December range has established a trading floor in the mid-$70s, limiting the size and intensity of potential pullbacks. In addition, the overnight rally has lifted above the .786 selloff retracement level. This marks the last harmonic barrier ahead of a round trip into the lofty 2000 peak. As a result, price action around $80 could determine the tone of price action through the first quarter.
Overbought is a term used when a security is believed to be trading at a level above its intrinsic or fair value. Overbought generally describes recent or short-term movement in the price of the security and reflects an expectation that the market will correct the price in the near future.
The Bottom Line
Micron is trading at a 20-year high after beating first quarter profit and revenue estimates.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.