Micron (MU) is doing great. It’s up 352% over the past 52 weeks, making it the second-best performing stock in the S&P 500 and the year’s top performer, up 61% in Thursday trading. On Wednesday night, the company’s quarterly report dashed expectations. It wasn’t just a beat. Micron’s ability to flex its pricing power in an environment where demand for artificial intelligence continues to outstrip supply. The real story was the guide. Micron estimated third-quarter sales at approximately $33.5 billion. But I’m not here to talk about how great the fundamentals are. That’s not my specialty. For that, check out Jim Cramer’s great interview with CEO Sanjay Mehrotra on “Squawk on the Street,” or watch my colleague Paul Meeks discuss it with Morgan Brennan on “Worldwide Exchange.” We like to focus on a recurring theme in this market: technology companies that crush earnings but fail to reach new highs. We’ve seen it in the semiconductor space with Nvidia and Broadcom, and to varying degrees in the software space with Microsoft, Adobe, and Oracle. Now Micron has joined the list. Each stock is very different from a technical perspective. In Micron’s case, the stock price has increased significantly. Looking at multiple time frames shows there are some positives as to why this situation persists, and also an opportunity for investors to take advantage of the decline. Setup Looking at the 1-year daily chart, we can see that the stock is trying to break out ahead of earnings, but has so far been unable to maintain momentum. You need to check the level of support as it can sometimes lead to a dramatic reversal. Here are some important levels to focus on. There is a fairly wide consolidation area between $360 and $460. Obviously the stock is volatile, but the trend is still up. The key levels in this scenario are 20% apart, which is great for swing traders, but could make the average investor nervous. Given the stock’s fundamental strength and its relative strength relative to its sector and the S&P 500, we expect this downside to be fairly low. Looking at the long-term price trend, we go back to the 5-year weekly chart for perspective. We’ve seen a parabolic rise here over the last year, but there’s one consistent pattern. On a weekly basis, the price trend is perfectly aligned with the 10-week moving average. An unusual but historically robust indicator for determining overbought/oversold conditions is to measure the percentage deviation of a stock from a selected moving average period, based on a backtest of 30 Dow Jones Industrials, with a benchmark range of plus or minus 10%. Despite the sharp rally we’ve seen, Micron’s extension from its 10-week simple moving average has already normalized. After hitting an all-time high of about 38% above its 10-week average on January 20th, the stock now sits near the midpoint of its typical plus-or-minus 10% range, suggesting that the previous overbought condition has largely reset, while the broader uptrend remains intact. Based on weekly closing highs, a close above $430 this week would confirm a long-term breakout and provide new support. Trading Scenario 1: Short-term Trading Pay attention to the stock’s closing price on Thursday. If the price maintains the difference from Monday’s low of $437.75, the stock is poised for a quick rebound and should make new highs in the coming days. This level is a short-term support level if we trade without owning this. Scenario 2: Possible sideways movement This is a scenario where the price falls into a neutral consolidation zone, giving swing traders ample opportunity to take profits, but frustrating long-term holders who scream at the screen how great the returns and guidance are. This is something Nvidia has experienced in the past during multi-year bull markets, and it’s happening again now. Micron could fall into that zone. It can’t be helped that the current market conditions are not ideal tailwinds. Use the rising 50-day moving average as a stop loss and consider a buyback at $360 if conditions worsen. Although the downside may seem unlikely, you must always adhere to your risk management level and be prepared. Scenario 3: Long Term Trading This falls into Jim Cramer’s classic “don’t trade, own” scenario. Fundamentally and technically all the boxes are checked now. The trend remains unchanged, and stock prices have remained steady after a significant rise. One question investors may have is, “Can this historic rally continue?” One of the hardest things to do is buy stocks that have skyrocketed in value. As a technician, it’s always better to buy stocks on momentum rather than trying to find the bottom. Nothing has changed in this regard, and the long-term trend is certainly strong, so it’s not too late for anyone looking for an opportunity to cash in on the name. — Jay Woods, CMT, Chase Game Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, its parent or affiliates, and may have been previously disseminated on television, radio, the Internet, or another medium. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
