Traders are bracing for Micron’s earnings report, which is due after the close today. MU has enjoyed a strong rally since the beginning of 2023, rising more than 40% with a solid uptrend. Memory market inventory headwinds have mostly diminished due to production cuts from many semiconductor firms, and DRAM prices seem to be slowly picking up. But most importantly, with massive investments pouring into the AI industry and servers, memory demand could be the main driver for Micron’s latest success. The AI server market is expected to grow very fast in the next couple of years, providing Micron with a solid opportunity for growth. However, despite the overall positive forecast, short-term headwinds are still not over, and a possible correction might be due if today’s earnings report does not satisfy investors.
Micron is currently priced at around 4X price-to-sales ratio ahead of the earnings report, which can be seen as positive relative to other AI-heavy stocks like Nvidia, which is priced at around a 30X price-to-sales ratio. However, the last two times Micron’s P/S ratio rose to around 4X, it reached a peak and then experienced a significant decline. Furthermore, the volume has fallen significantly as the uptrend channel continues, which could be interpreted as bearish unless a major breakout occurs. Despite the negative signals for the short term, both the long-term trend since 2016 and the trend channel since January of this year are still ongoing.
For the past couple of days, the Fibonacci 38.2% level (67.53) has been holding off downward pressures. Below it, the 65 and 200-day moving averages at 62.34 could serve as potential support levels. A possible break of the 200-day moving average could mark the end of the uptrend channel that began in late 2022 and early 2023. If this occurs, the next target could be the long-term uptrend line for MU, presenting a favorable buying opportunity for swing traders as long as it holds.
Regarding upward movements, 73.44 stands out as the key resistance level to monitor in the short term. In the event of a breakout, the price could target 79.34 and subsequently aim for the upper boundary of the trend channel in the coming weeks.
