Micron’s technical indicators
Micron Technology (MU) stock has been in a downtrend since September due to fears of a cyclical downturn. However, some long-term investors were bullish on Micron, as they expected secular demand from artificial intelligence and Internet-of-Things to stabilize the memory market. However, the company’s fiscal 2019 first-quarter earnings show no growth in sight for the next six months and uncertainty in the long term.
In our article dated December 17, we stated that Micron’s technical indicators show that the stock is expected to decline in the next few days. Since then the stock has declined 7.6% due to disappointing earnings. Technical indicators study the stock price pattern and try to find a trend to build an estimate of future stock price movement.
Moving averages take the average of a stock’s prices during a certain period to understand which direction the movement is skewed. Micron’s stock price has hit a new 52-week low and is 33% below its 200-day moving average. The stock has been trading below the 200-day moving average resistance for quite some time. The case is similar for rival Western Digital (WDC) and equipment suppliers Applied Materials (AMAT) and KLA-Tencor (KLAC).
The moving average shows a downtrend in the memory industry. How long will this downtrend last? And when will the stock bottom out? To answer these questions we need to understand the investor sentiment.
The best way to understand investors’ sentiment is through the RSI (relative strength index), which is measured on a scale of zero to 100. An RSI that’s less than 30 indicates that the stock is oversold, while an RSI greater than 70 indicates that the stock is overbought.
Between December 17 and 20, Micron’s RSI declined from 37.45 to 31.27. The stock has already hit a new 52-week low, but it has the potential to fall below this level, as RSI has not yet fallen below 30. On the other hand, Western Digital is already in the oversold category with an RSI of 26.0.
With declining EPS and return on equity, Micron’s stock can fall further before the stock resumes to normal trading. On the other hand, Western Digital could see some growth in the short term.
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