A 20% pullback in Micron Tech (MU). Think it’s time to buy? Here’s how. (April 03, 2018)
MU SMH XLK MU
Let’s look at Micron ( NASDAQ: MU ), here’s why: In a perfect world, and trust me, this is not; in a perfect world this stock would have pulled back a lot shallower. It wouldn’t have been so steep and we would get a nice little tag of the 50-day moving average. It would grind around a little bit and then start to move up and we would just make a gang of money, right?
Well, that is not what is happening but doesn’t mean we can’t make a gang of money. The stock was really extended going into earnings. At Option Market Mentor we had some upside on this. As it turned out I would have been better off just buying calls on it and forgetting about it. But instead, we did it a different way, made some good money but just not as much as we could have if we had just thrown caution to the wind and piled in. But that is not trading, that is gambling.
So here we are; the stock rallied up into earnings. It got to a point where even though earnings were really strong, the stock gaps up, massive volume and then everybody’s selling. Well, after all this time what has happened? Well, it looks to me like the selling that took this thing down from the high, about 20 percent, it looks to me like this is now stalled out at $50.00.
That gives us an opportunity. We sold the puts, the $46.00 puts, at Option Market Mentor; we sold those for $1.40. So if the stock were to get put to us our cost basis would be 44.70. That is a risk that I am willing to take. I am happy to take the stock down here if it happened to pullback and we got the stock put to us.
If you are a stock trader though, just use 50.00 as a reference. As long as the stock stays above 50.00 or at LEAST above the 50-day moving average here then you are good to go on this and you just stay long. I wouldn’t expect this big move way back up to 60.00 and beyond. The market just isn’t giving us those kinds of possibilities right now.
However, after the kind of pullback this has had, combined with the monster quarter that they had, this is a stock that would still be under institutional accumulation. So you buy this stock on this pullback or sell the out of the money puts and then hope that the stock stays above 48.50. That gives you a good way to frame your risk on this trade.
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