Micron: What's Going On?

| About: Micron Technology (MU)


Strange trading patterns in Micron prior to earnings announcement.

Market Maker involvement.

Buy aggressively.

There is so much to say about Micron (NASDAQ:MU) and so little time to say it.

Market Action:

The share price has declined the past week on surprisingly low volume. 90 day average volume has been 35.5 million shares. Friday was down $.35 on 23.8 million shares, Thursday down $.06 on 32 million shares, Wednesday down $.28 on 25.9 million shares, Tuesday up $.63 on 32.8 million shares, and Monday up $.29 on 35.9 million shares.

Now I have always been taught that up or down on big volume is good and bad, respectively, and that up or down on low volume meant... pretty much nothing.

However, this last week was unusual in the pattern of trading. There were several large blocks that were apparently sold at the market. There was also the Cramer sell call that took the price down a pretty good chunk very quickly.

There was also a strange report by AP on the settlement of an outstanding DRAM antitrust case. The AP report is strange due to the following bit: "The settlement means consumers can start filing claims to recoup the money they overpaid as a result of chip makers engaging in unlawful anti-competitive practices to inflate prices."

That sentence, on a quick read, would leave investors with the impression that Micron is now open to a barrage of lawsuits, when in fact, the only recourse left is to file a claim for compensation from the settlement funds. (Now, we all also know from watching the Cramer video that the financial press is 100% clean and can't be bought for a planted article or a particular misleading "spin." Cough, cough.)

This settlement is simply another example of Micron cleaning nagging issues from many years ago.

Last week also seemed to have more than normal concerns about memory pricing declines that could lead investors to the conclusion that there was a memory pricing cliff in the near future. More about that in the next article.

While all this is going on, the Yahoo "consensus" earnings number for Micron for the quarter to be reported in April rose, in one day, from $.61 to $.74. That's 20 analysts upping the average earnings estimates 21% in a single day. I, for one, have never, ever seen anything like that happen unless there was a mid-quarter guidance upgrade by the company involved.

Okay, now here's what I think is going on. I think we are seeing Market Maker footprints in the above. I have written about this before when the stock was $16 and change.

So, we have a stock whose "street" earnings consensus has gone up 21% in a single day with no announcement from the company. We have a company that several smart people on Seeking Alpha and elsewhere think can earn $1/share, give or take, for the quarter just completed. We also have a stock that has a short interest of 110 million shares.

If the $1/ share is right, and I think it is, it will represent a tremendous beat on the $.61 (now $.74) and make the stock instantly worth, in the eyes of investors, about $40 per share. The day after earnings are announced one might expect a large gap up to be turbocharged during the day by a significant short squeeze.

Market Makers are obligated to fill orders at a posted price, and they are obligated to sell those shares even if they have to short to do so. A smart Market Maker who believes the $1/share (or has come to KNOW the $1/per share) would be wise to accumulate as much inventory prior to earnings as possible.

In order to shake shares loose (no one sells in an advancing market), the Market Makers (who set the stock price) cause a price decline by selling or shorting shares abruptly into a lethargic market. He then buys back several times the shorted shares in an orderly fashion. Thus, over time, the market makers will acquire a significant position in the stock at lower than expected prices. This Micron volatility (sharp drop followed by a gradual recovery of the price) happened all week and is exactly Market Maker footprints.

The highest trading volume I have ever seen recently on Micron stock is 150 million shares on the day after the Hynix (OTC:HXSCF) fire. If we catch $1/share with 110 million shares short, we could expect a 300 million share day in Micron with a several dollar increase in share price.

This is the kind of a day that Market Makers don't want to be on the wrong side of. This is the kind of a day the investors want to be on the right side of. These are the kind of days that make new millionaires.

Buy Micron with as much leverage as your investing style will permit.

Disclosure: I am long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.