Could Micron Stock Run Up to Its 20-Year-Old High Near $97?

This heroic comeback of MU stock has turned into a love story

It took Nvidia (NASDAQ:NVDA) stock 16 months to recover its all-time highs set on Oct. 1, 2018. The correction was violent, and a slog on the way back up. Meanwhile, Micron (NASDAQ:MU) started its correction a few months before NVDA, and Wall Street absolutely hated it at the time. Sure, it was far from its all-time high that it set almost 20 years ago — but MU stock has some upside potential developing.

Micron stock has been in a strong bullish trend since the 2018 Christmas market crash. It is now up more than 90% since Christmas Eve 2018, but the purpose of this article is to bring focus to the possibilities that exist above current levels.

In May of 2018, Micron failed just below $65 per share while attempting a big breakout. If the bulls can take it out now, they can trigger a bullish pattern that will finally challenge the all-time highs with about $30 of upside — maybe more. This set up took decades to form, so it is likely to be a slow mover.

Moreover, it won’t trigger until we get confirmation above the last failures at $65. It will be important not only to overtake it, but to also establish it as forward support.

Only then will the pattern set and MU stock would off to the races. That said, momentum traders love to buy high and sell higher.

Big Upside Potential Brewing in MU Stock

I know this sounds crazy, but I had the same observation when MU stock approached $36 per share.

Back then in the fall of 2017, the same pattern triggered and filled its entire target to these levels here. So from a trading perspective, those already long on Micron stock are set. However, if looking to get long on it now, jumping the gun is not ideal. The next few dollars are tricky, and I prefer seeing the breakout confirmation before chasing the upside.

Overall, there are other things that investors can do, like selling puts in the meantime. The alternative is to simply wait for dips and buying those just to have a better cost basis.

What adds to the hesitation here is that the entire stock market is at all-time highs in spite of the coronavirus from China threat. One thing is clear on that front and that is we have a lot of unknowns. Micron and the global economies depend heavily on China for a lot of growth. It’s been dubbed the “global engine” for that for a long time. So if it falters, everyone will feel it.

In short, the equity markets are vulnerable to corrections from these record levels. Patience may prove prudent, and at worst, investors should consider taking partial positions to leave room for managing risk on bad days. Nevertheless, the bulls are in charge — and they are buying every dip. Shorting stocks these days is risky, thereby giving advantage for the upside direction.

Micron Fundamentals Are Not As Cheap as Before

As Micron fell back into favor on Wall Street, it became more expensive. And it now sells at a blistering 19.2 trailing price-earnings (P/E) ratio.

I remember recent days when it was falling below $30 per share, and the experts were calling it a value trap. At the time, it had a P/E under three. And now, it’s six times more expensive and they love it without any major changes inside the company.

Expert expectations add another layer of risk. But clearly, we don’t need the opinions of the so-called experts to trade MU stock. My concern is its relative value. The current 19 P/E ratio is not insanely bloated in absolute terms, but it is astronomical relative to its own history. In my book, Micron here is far from a bargain — so conviction needs to be strong if buying it new.

Today, it gets an extra tailwind from sympathy love for the Nvidia’s earnings reaction. I hesitate to buy sympathetic rallies because they tend to fade. Therefore, I bet that waiting out a few days will turn out to be the best course of action. Even at the risk of missing out on a few upside bucks.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.