Shares of Micron (MU) are up about 2% on Friday despite a weaker-than-expected revenue update for investors.
The chipmaker reported earnings after the close on Thursday. While the earnings beat expectations, revenue of $6.64 billion fell almost 20% year over year and missed analysts’ expectations.
Worse, guidance was a massive miss. Management expects revenue of $4 billion to $4.5 billion next quarter, below Wall Street expectations of $5.65 billion.
Nonetheless, the stock is rallying. That’s after Micron made new 52-week lows a week ago and hit its lowest level in two years.
Seeing a stock rally on what might be negative news for the longs tends to be a positive, but in a bear market it’s hard to trust the rallies. That's particularly when we know a global slowdown is in the works, and Micron tends to be very cyclical.
Let’s look at the charts.
Trading Micron Stock
Chart courtesy of TrendSpider.com
As much as I like seeing Micron stock gaining after an update of this sort, it kind of reminds me of the action we saw in Nvidia (NVDA) about a month ago.
On Aug. 25, NVDA shares jumped about 4% even after the graphics-chip specialist reported disappointing results (which had been preannounced) and were accompanied by lackluster guidance.
Despite the news, the bulls gobbled up the stock ... then paid the price.
The stock fell 9% in the following session and 25% over the next seven trading sessions, all of which were declines.
I’m not saying Micron is set to fall 9% on Monday and 25% by the end of next week. Instead I’m saying that the bulls need to be careful with this name.
Case in point: The technicals say we’re not out of the woods yet.
So far, we have an inside week, meaning this week’s range is contained within last week’s range. That could set us up for a range break next week (either higher or lower), but the bigger problem is that Micron stock is still stuck below the $52 area.
That was support in June when Micron initially bottomed, and it was a key breakout area in the fourth quarter of 2020.
If Micron stock can’t reclaim this area, then I would be skeptical of a further rally. Above this zone and the shares must clear active resistance via the 10-week moving average. That would open the door to $60.
If, however, the shares rotate lower and take out this week’s low of $48.81, the door opens down to the 2022 low of $48.45.
That’s when we may start probing the 78.6% retracement near $45 and much stronger support near $42.
