Micron's stock drops as first 'death cross' in 2 years appears

By Tomi Kilgore

Last death cross appeared in April 2022 - and the stock fell another 30% before bottoming 5 months later

Shares of Micron Technology Inc. slumped Monday, just as a longer-term bearish chart pattern appeared for the first time in more than two years - a warning that losses could start accelerating.

Monday's weakness comes as Morgan Stanley analysts gave a downbeat assessment of the outlook for Micron and the memory-chip market, as they believe earnings-growth expectations will peak and reverse in the coming quarters, which could lead to a near-30% contraction in valuation for the sector.

The Morgan Stanley analysts kept the rating on Micron's stock (MU) at equal weight, but slashed the price target to $100 from $140

Micron's stock sank 5.2% in afternoon trading, as part of a broad selloff in semiconductor stocks. It is hovering just above a seven-month closing low of $56.27, hit a week ago.

A chart pattern widely known as a "death cross" appeared Monday. That's because the 50-day moving average, which many use to track the short-term trend, has just crossed below the 200-day moving average, seen as a dividing line between longer-term trends.

For many technicians, that means investors should no longer assume that the stock's recent selloff will be just like one of the many short-lived pullbacks seen over the past year and a half.

The 50-DMA, currently at $104.00, is below the 200-DMA, at $104.75, for the first time since March 9, 2023, which was just after the stock's uptrend started in January 2023.

The last death cross appeared on April 28, 2022. The stock fell another 30% before bottoming five months later.

Moving-average crossovers aren't meant to be market-timing triggers, as they are well telegraphed. This can be seen in how short interest, which measures bearish bets on the stock, has been rising rapidly over the past several weeks.

The latest exchange data show that Micron's short interest of 35.98 million shares is at the highest level seen since April 2020, at the height of the COVID-19 pandemic panic.

As Morgan Stanley analysts noted, this increased bearishness could be viewed as a short-term technical positive for Micron's stock, as once a bearish bet is made, the next action for that bet would be to buy the stock to cover.

However, the analysts said over time fundamentals matter more than technicals, and "we see clear incremental risk" that an earnings recession is ahead for the memory-chip sector, as average selling prices are set to fall into next year.

The outlook for ASPs "is falling increasingly into question," the analysts said, and they expect Micron's stock and the sector "to continue trading poorly" until there are clears signs that outlook reverses.

"Our cycle indicator has shifted out of 'late-cycle' to 'peak-cycle' for the first time since 2021, and this phase-change has historically meant a challenging backdrop for forward returns," the analysts wrote in a note to clients.

As a results, they expect earnings growth expectations to peak and reverse in coming quarters, "and a higher chance of investors resetting positions."

Micron's stock has tumbled 38.8% over the past three months and the PHLX Semiconductor Index SOX has dropped 13.1%, while the S&P 500 index SPX has rallied 17.8%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-16-24 1355ET

Copyright (c) 2024 Dow Jones & Company, Inc.