Micron Testing 2020 Breakout Ahead of Report

Micron Technology Inc. (MU) reports Q2 2022 results after Tuesday’s closing bell, with analysts looking for a profit of $1.98 per-share on $7.53 billion in revenue. If met, earnings-per-share (EPS) will more than double the $0.98 posted in the same quarter last year. The stock soared more than 10% in December after beating Q1 EPS and raising Q2 guidance but turned tail in January, dropping more than 20% into late March.

Memory Chip Production Under Pressure

The Russia – Ukraine war has triggered turmoil throughout the semiconductor space, with a number of key manufacturing materials in short supply outside of the rogue state. Micron has fared as well as most chip stocks during this period, outperforming PHLX Semiconductor Index by about five percentage points. However, both instruments are struggling at their 200-day moving averages, raising the potential for even lower prices in the second quarter.

Flash memory prices are rising rapidly, forcing analysts to lift quarterly estimates, but total volumes will suffer as a result of supply disruptions and bearish sentiment. As Citi analyst Peter Lee pointed out when war broke out, “memory makers currently hold 6 to 8 weeks of inventory of these critical gasses, higher than the normal level of 4 weeks. Yet supply of these gasses is highly dependent on Ukraine, and any disruptions to output arising from military action in the region could lead to semiconductor production being severely impacted”.

Wall Street and Technical Outlook

Unfortunately, Wall Street consensus hasn’t budged in the last month, raising the prospect of multiple downgrades. It currently stands at a euphoric ‘Buy’ rating based upon 32 ‘Buy’, 2 ‘Overweight’, and 4 ‘Hold’ recommendations. Price targets range from a low of $77 to a Street-high $165 while the stock closed Friday’s session just a buck above the low target. Look for any weakness in this week’s confessional to bring down these lofty targets.

Micron Technology rallied above 2018 resistance in the 60s in November 2020, entering an uptrend that stalled within 54 cents of the 2000 high in April 2021.  A January 2022 breakout attempt failed after exceeding the multi-decade peak by 95 cents, ahead of aggressive selling pressure that reached within three points of 2020 breakout support in February. A selloff here could be catastrophic, failing the breakout and establishing a new secular downtrend.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.