Micron shares have sunk into bear market territory, and one chart watcher says the semiconductor stock could extend its painful losses.
“I think Micron is in a little bit of technical trouble here,” Todd Gordon, technical analyst and founder of TradingAnalysis.com, said Tuesday on CNBC’s “Trading Nation.”
The stock is down 34 percent since its recent high in May as investors fear the impact of proposed U.S.-China tariffs, and posted a particularly bad sell-off last week after demand within the memory market was called into question.
This performance stands in sharp contrast with some of Micron’s peers like Advanced Micro Devices and Taiwan Semiconductors, which are up a respective 91 percent and 15 percent in the last three months. Meanwhile, the broader semiconductor-tracking SMH ETF is down 4 percent in the same time.
Gordon sees further downside for Micron into the company’s earnings on Sept. 20. He noted that the options market is implying a roughly 10 percent move for the stock in either direction.
“We can see that from the most recent swing, Micron has broken support. If you zoom here, it doesn’t matter where you draw the trend line. If you go from this low in February, support is broken. If you go up here and catch the low in May and then up in July, support is broken. We have retested and dropped down. What I’d like to do is try to get down to some support levels just at around the $38 region,” Gordon said, examining a chart of Micron, trading at around $43.60 per share on Tuesday.
The $38 mark represents the low from early February. Gordon believes this is a reasonable downside projection, should the company miss on its earnings results. He plans to utilize a so-called butterfly options trade to express his bearish sentiment and protect his trade amid volatility.
Gordon plans to buy one 36-strike put, sell two 38-strike puts, and buy one 40-strike put for about 21 cents, or $21 per options trade. In this trade structure, Gordon is targeting a move to that middle strike.
“We have max profit right up here at the middle of the butterfly, that’s the $38 region there if we finish there on earnings, and then we start to lose profitability as we move up toward $40,” he said.
If the stock closes right at $38 at expiration on Sept. 21, he’ll make about $175 on the trade. If the stock falls further and gets down to about $36, he’d lose $22; the same amount would be lost if the stock goes the other way and surges to $40 per share.
Micron shares closed nearly 3 percent lower on Tuesday, at $43.60 per share.