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Micron Stock Will Fall, Says Technical Analysis

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Micron (MU) stock closed trading at $47.93 on December 6, rising 2.81% from the previous trading session. This change lagged behind the S&P 500’s (SPX) 0.91% increase on the day. Meanwhile, the Dow Jones Industrial Average (DIA) was up 1.22%, and the tech-heavy Nasdaq Index (QQQ) surged 1.0% at the same time.

Since my last article about MU, Micron Stock Could Keep Rising despite Distractions, the stock’s price has generally remained unchanged. This trend primarily resulted from the stock’s phenomenal rally of about 51% year-to-date. However, it seems like market sentiment has turned bearish.

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Over the past few days, options traders made few large bearish bets, suggesting further downside for the stock. Moreover, technical analysis indicates that the stock currently tends to drop. So, let’s take an in-depth look at the options trades and the technical chart to confirm the outlook for Micron stock. 

Options traders betting on a drop in Micron stock

Despite the 2.81% gain in Micron stock during the past trading session, options traders appear to be betting that MU would plunge significantly in the coming months.

During the December 4 trading session, there was a purchase of about 11,000 $36.00 January 17 call options for $0.37 per contract. Moreover, this transaction brings the total number of open contracts to 11,087. This means that the bet has a total dollar value of about $0.5 million.

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So, I would describe this trade as a moderate bearish bet. At closing that day, the stock was priced at $47.93. This level means that if the stock can reach its strike price, it would have a downside potential of about 25% from its current levels. If the options buyer plans to hold the options until they expire, they’d need a price of $35.63 to earn a profit, not including costs and broker commissions.

Looking ahead

On December 5, the $45.00 calls that expire on December 20 for MU stock saw their open interest rise by around 10,200 contracts to 16,638. The calls were bought at $0.73 per contract. This level represents a significant bearish bet for MU stock, given the total dollar value of these transactions at about $1.2 million and the expiration date. A buyer of those puts would need Micron stock to plunge to $44.27 by the expiration date to break even. That’s a downside potential of about 8% from Micron’s current price.

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With respect to the open interest levels for January 17, $40.00 calls increased modestly on December 5. According to data provided by Barchart.com, the open contracts rose by 1,572 contracts to about 14,980. A buyer of the calls would need MU stock fall to about $38.00 by the middle of January. This is a huge bearish bet, too. The open interest has a dollar value of about $3 million. 

MU technical chart shows momentum leaving

Micron’s stock price failed to break the technical resistance level of $48.00 during the last trading session. This means that bullish momentum is weakening and the stock would most likely fall in the coming weeks.

A close look at the weekly chart reveals a confirmed bearish pattern known as bearish engulfing. The weekly chart shows that the stock recently formed a formation known as lower lows. This is a bearish technical pattern that suggests further downside in the stock. The money flow index has been trending lower since mid-November, meaning that the stock is likely losing bullish momentum. 

Looking at technical levels, I wouldn’t be too surprised if Micron stock fell after the fake breakout of the resistance level. The stock may start to fall toward the price level at $45.00, which is the nearest support. If this move plays out and $45.00 is breaking out, then $43.00–43.50 comes into focus as the medium-term target.

If you’re interested in more technical analysis like this, please check out Options Traders Think AT&T Stock Will Climb Higher. You can also read Is MSFT Overvalued? Technical Analysis Says Yes and Facebook Options Traders Think the Stock Can Rise More.

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