Micron Technology, Inc. (MU) hit an all-time high of $101.85 last week, but it couldn’t sustain or surpass it.
Leading up to its apex was a solid year-and-a-half of gains, returning 112% from September 2022 to the present. The latest narrative fueling the stock’s bullish case is that MU has joined the AI party. Having already been selected by Nvidia (NVDA) to provide high-bandwidth memory (HBM) components for its next-gen AI chips, analysts note that this might extend to Advanced Micro Devices (AMD).
An opportunity for future growth? Fundamentally speaking, yes. But does MU look a little toppy? Possibly. Let’s take a closer look.
CHART 1. MONTHLY CHART OF MICRON TECHNOLOGY (MU). Note the shooting star, a harbinger for a pullback.Chart source: StockCharts.com. For educational purposes.
Overlaying the 60-month simple moving average (SMA) representing five years, you can see that prices have often bounced off this average price level. Prices have also reversed twice (in 2021 and 2022) from the resistance range that marked its most recent record high. As MU pulls back, how close might it get to its average five-year price before advancing again?
Also, note the shooting star, which strongly indicates the likelihood of a bearish reversal (a 59% occurrence based on technical analyst Thomas Bulkowski’s historical stats).
Using a Bearish Technical Scan on a Strong Stock to Find a Bullish Signal
On Wednesday, MU came up as a scan result for a bearish Parabolic SAR Sell Signals scan using the StockCharts scan engine. With an SCTR score above 78 (meaning, not super bullish but not bearish either) and a strong fundamental case as mentioned above, the bearish scan was an effective way to find a potentially strong “long” prospect in the midst of pulling back.
And that’s what the chart revealed.
CHART 2. DAILY CHART OF MICRON TECHNOLOGY. Running a bearish scan on a fundamentally strong stock can sometimes help you identify prospects for a bullish position.Chart source: StockCharts.com. For educational purposes.
When MU’s price broke below the Parabolic SAR’s trailing stop, there was a clear bearish divergence between the price surge and the drop in buying pressure, as indicated by the Chaikin Money Flow (CMF).
Given MU’s strong fundamental prospects, investors might be looking for entry points. In that case, the 50-day, 100-day, and 200-day simple moving averages (SMAs) have been plotted to anticipate potential reversals toward the upside. In addition to this, notice how the Stochastic Oscillator’s reading coincides well with MU’s cyclical movements.
The idea is to look to both the Stochastic Oscillator and the SMAs to anticipate and identify a reversal that might serve as a long entry point. The reversal candlestick should be supported by substantial volume and momentum. The Stochastic Oscillator, whose cyclical fluctuations seem very much in sync with MU’s swings, and the SMAs can both help you time a favorable entry.
The Bottom Line
Having used a bearish scan (Parabolic SAR Sell Signals) to uncover a bullish opportunity, Micron Technology Inc (MU) presented itself as a potential trade prospect. Having reversed from its all-time high, the fundamental case for MU remains strong. The bearish scan initially suggested a sell, revealing the opposite—a buying opportunity amidst a pullback. This approach underscores the value of a nuanced analysis, where bearish technical signals in the context of solid fundamentals can identify opportune moments for strong trade. In the case of MU, you’ll have to see if this thesis pans out as it dips further down.
How to Run a StockCharts Scan
Finding the right stocks and exchange-traded funds (ETFs) to trade can be tricky. But with a little work, you can create a strategy identifying a few promising prospects.
Fortunately, it isn’t too hard to learn how. Just stick to these steps:
Select (or create) a few different scan criteria
Be sure to run these scans regularly
Analyze the stocks (or ETFs) that your scan has identified
Determine your overall trading setup (including your entry and exit criteria)
The StockCharts Scan Engine is helpful in narrowing down stocks and ETFs that match specific requirements. It comes with many ready-made scans that are a good starting point. As you get the hang of these scans, you can adjust them or create new ones that align with your trading goals.
For example, this article was prompted by a Parabolic SAR Sell Signals scan. As you can imagine, there are plenty more scans you can run. Try out the StockCharts Sample Scan Library (Charts & Tools > Sample Scan Library)
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.