Micron's Stock May Fall 24% From Its Highs

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Micron Technology, Inc. (MU) stock may still have further to fall, despite already falling by nearly 14.5% from its highs at the end of May. The stock may drop by an additional 8% from its current price around $53.20 to about $49, based on an analysis of the technical chart. This gives the stock a total loss of about 24% from its highs set just a few weeks ago. (For more, see also: Why Micron's 2018 Stock Gains Won't Last.)

The bearish short-term outlook comes despite the company reporting better than expected quarterly results for the fiscal third quarter. Earnings beat estimates by nearly 3%, while revenue topped the forecast by 1%. But still, the better than expected results were not enough to keep the stock rising. 

Weak Chart

The stock has been trending lower since peaking at the end of May, and despite two attempts to rise above resistance at $61.50 the stock was unable to rise. Micron's stock has tumbled since reporting results on June 20, and on June 25 the stock fell below a critical technical support level at $54. As a result, shares may fall even further to perhaps $49, a drop of 8%. This is where the stock has a long-term uptrend in place, which should act as a steady level of technical support. 

The relative strength index (RSI) also fell on the day to roughly 37, its lowest level since November. It would suggest that Micron may have further to fall before reaching oversold conditions below 30. 

Bearish Betting

Some options traders are even betting the stock will fall below $45 by September. The $45 put options for expiration on September 21 saw a rise in open interest levels recently, to about 6,300 contracts. With the price of the put options trading around $1.50 per contract, the stock price would need to fall to $43.50 by expiration for the buyer of those puts to earn a profit. That would be a decline of almost 20% from the stock’s current price. 

Analysts Are Bullish

Analysts are bullish on Micron with an average analyst price target of nearly $80, according to YCharts, almost 50% higher than its current price. But only 76% of analysts have a buy or outperform rating on the stock, while 18% have a hold. It sounds like a significant amount of bullish conviction, but consider that 87% of analysts had a buy or outperform rating on January 8. (For more, see also: Why Micron's Stock Plunge Will Only Get Worse.)

MU data by YCharts

While it may seem like an opportune time get involved in Micron, it may not be the case—at least based on what the technical charts are suggesting. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.