Micron (MU) only recently popped onto my radar. I was aware of the company before of course, but I’d never considered it as an investment vehicle. That changed when an acquaintance and fellow market player suggested going long a couple weeks back.
I took a look, but rather than seeing a bullish picture I saw a situation that struck me as incredibly bearish, which led me to purchase some Put Options.
Micron has been on almost a 3 year run, from lows in and around $10 in early 2016 to prices exceeding $60 earlier this year. Here is the three year chart:
Someone Please Invent a Time Machine
Obviously I cannot go back in time. If I could go back to early 2016 I’d obviously buy all the MU I could around $10 and then would have dumped back in March, May and June when it was trading over $60 per share.
Conversely going short or buying Put Contracts when MU was over $60 would have been incredibly profitable as well. But alas, Doc Brown and Marty McFly are movie characters and there are no Deloreans traveling back and forth through the space time continuum yet.
No, the only way to make money in the stock market that I’m aware of is to try to discern what the future will bring. The past can serve as a guide though, and it is my opinion that technical indicators and price volume movements can give a hint into what the smart money players have been doing and what they’re expecting going forward.
And by my read the smart money has been running for the Micron exits and likely going short.
Dumb Money Sheep Love News, Even When Its Old
I will not be the first to remark that the market is forward looking, that’s hardly a ground breaking pronouncement. Everyone is looking forward when they go long on a stock, or short for that matter.
Back in June when the 10Q for quarterly earnings up to May 31st 2018 came out bulls saw ample reason to pay $60+ for shares of Micron. After all earnings per share had more than doubled from the previous year, going from $1.49 to $3.00 on a non diluted basis.
Of course a year earlier MU shares weren’t trading for $60+, instead they were in and around $30 or about half. Seen this way it could be said that the increased earnings of the previous 12 months, that they were already “priced in” to MU’s stock price.
At least they were priced in back then, sellers got $60 for their shares and buyers got shares for their Do-Ré-Mi at that price, it is a zero sum game after all and with the PPS now hovering in and around $45 its obvious that sellers got the better deal.
That’s the Past, What About Going Forward?
I am writing this posting on September the 11th, and earnings for the period ending Aug 31st are due out on the 20th of this month. Many shareholders are no doubt waiting on and hoping for more robust numbers to be reported next Thursday. But again, we are now into September so the numbers that will come out next week are already old today, and they’ll be almost 3 weeks old when they’re finally released.
I consider it likely that MU will at least come close to meeting, and maybe even beating, estimate forecasts of $3.26 per share.
So why am I bearish?
Because again, its old information and I am anticipating that smart money sellers will trade their shares for cash like they did in June for $60+ when earnings came out last time. The difference being that this time I see sellers getting a lot less. And those who wait hoping for a rally, in a few weeks time I think less than $40 is distinctly possible.
Why might sellers be bearish on the future? I think they are expecting softening demand in the chip market going forward.
Volume and Moving Averages
I’ll wrap this up by pointing back to June’s volumes when the smartest sellers were getting $60+ for their shares, and by noting the movement of the 50 and 200 Day Moving Averages.
Take note of the volumes, there were days with over 100 million shares trading hands in June. 100 million is almost 10% of the outstanding share count and is something I consider technically significant. In fact if I see MU trading 100+ million shares sometime in the next couple of years for at least consecutive days, then I’ll start looking at taking a position on the long side.
But for now and for the remainder of this year my opinion is decidedly bearish.
And the downward trajectory of the 50 DMA has it on a collision course to drop below the 200. Technical players know that when a faster moving average crosses with a slower one that its either a bullish or bearish technical signal. Its bullish when the 50 DMA crosses over the 200 as happened in July of 2016 when the PPS was less than $15. Its aptly named a “Golden” cross
A cross of the 50 below the 200 is considered a bearish indicator, and barring a sharp turn around in the PPS I think we’ll see that event before September rolls into October. Some refer to a cross below as a “Death” cross.
Disclaimer: The author owns MU Put Option Contracts. The author is not receiving compensation for this article. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.