Chip stocks flip the switch
01/11/19

●Many beaten-down chipmakers are on the rebound

●Micron (MU) recently appeared to break a bearish pattern


 

Yesterday’s market dogs sometimes seem to magically transform into today’s darlings, but it always helps to check for lingering fleas.

Consider a development that is likely grabbing the attention of stock market bulls pawing the turf: The renewed strength in tech shares. The broadest US tech barometer, the Nasdaq 100 index (NDX), has trailed only the small-cap Russell 2000 (RUT) during the market’s recent upswing, and tech has also been the second-strongest S&P 500 (SPX) sector over the past five days.

And where has the SPX’s tech sector strength been concentrated? In semiconductor and equipment stocks, which as of yesterday had returned around 9% over the most recent five days. Semiconductors were also one of only two SPX tech sub-sectors to boast positive returns over the past month.

Semiconductor Index (SOX), 4/2/15–1/10/19. Semiconductor Index (SOX) price chart. Semiconductors take a hit.

Source: Power E*TRADE


Of course, part of the semiconductor mini-resurgence could be a function of how badly these stocks short-circuited late last year. The Semiconductor Index (SOX) sold off to the tune of -22% from early October to late December—and that was after it drifted 5% lower after hitting an all-time high last March. But the longer-term weekly chart above also reveals this correction didn’t take too big of a bite out of its monster 2016-208 rally.

Chipmaker Micron (MU), which more than doubled between August 2017 and May 2018 (with lots of dramatic swings along the way), gave almost that entire rally back over the next 10 months, falling 54% to 29.02 last month. But it’s since jumped more than 20%:

Micron Technology (MU), 7/5/18–1/10/19. Micron Technology (MU) price chart. MU makes a move.

Source: Power E*TRADE


The daily chart above shows that although Micron has staged comparable rallies in just the past few months, in one respect, at least, the stock has done something different this time. Aside from getting two recent analyst upgrades,1 the stock also broke its recent pattern of turning back down when it reaches a prior low.

Take a look: After the August, September, and October lows, MU rallied to the level of each low (sometimes briefly trading above it) and then reversed to create another leg of the downtrend. The past two days represent the stock’s largest and longest move above one of these resistance levels. It’s a small difference, but a difference nonetheless.

Will the juice keep flowing for a while? Each additional day the stock spends above this level—while allowing for a pullback to test it—is likely to encourage bulls. But those traders also aren’t likely to cling to hope if MU and other chipmakers break below their new support levels.

In other words, if they start feeling the urge to scratch, the fleas may be back.

Note: Micron’s next earnings release is currently scheduled for March 22.

Today’s numbers (all times ET): Consumer Price Index (CPI), 8:30 a.m.

Today’s earnings include: Aphria (APHA).

 

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1 Motley Fool. Micron Stock Upgraded Twice in 1 Week: What You Need to Know. 1/10/19.