Shares of Micron Tech (MU) are a screaming short after the stock surged 20% in the last week. The overbought nature of the stock is only a minor factor in the short thesis. More importantly is the topping tail yesterday, a strong top and reversal signal. In addition, Micron Tech hit an up-sloping trend line connecting the highs from July 2019 and September 2019. This trend line extends to the exact highs yesterday. The third factor is double top from a major pivot in September 2018. History shows us that when three or more factors show themselves, the success rate of the trade (in this case a short) is 90%. Those odds are fantastic for any investor and stock trader.
Overall, the semiconductor sector has seen a meteoric rise in the last few weeks. A lot of the upside can be attributed to end of year window dressing and investors chasing the hot sectors. The calming of tensions with China has also been a positive catalyst for the semiconductors.
The thesis continues with a short on Micron Tech (MU) based on institutions taking profits in early 2020 based on valuations getting extended. Once the current year closes, there is no reason for hedge fund managers to hold on to these names. Fund managers hold onto big winners for the year to show their clients on the end of year statement. Once the year is over, they do not have to impress the clients until the next quarterly statement. If things are overbought, they will want to take profits to bank the gains and not risk holding for the pull back into the end of the first quarter.
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