Micron Technology Inc. (MU) is poised to move higher after a slight pullback. It is also another demonstration as to how important March 16 was in the market as a whole. On March 16, many issues were distributed by their Designated Market Makers. Read my article on May 8, Market Set to Head Lower.
The Block matrix below gives a reasonably clear view of both sides of the distribution cycle. On March 16, you see the distribution and shorting being conducted and on May 31, to the present you see the short covering and accumulation. It is not by accident that these blocks transacted at the highs and lows of the range. Everything on the floor of the exchange happens on purpose.
I believe that it is possible (but not certain) that Micron will retest the low and double bottom at or around $5.50. I also believe that a fairly significant long term capital gain position has been established by the Designated Market Maker in this issue. What this means is that he has been supplying the recent advance from the $5.25 lows by shorting and he will need to cover his short positions. I believe he does not want to disturb his trading account which he uses to maintain a fair and orderly market or his segregated investment accounts, which he trades on his own behalf. He wants to keep those accounts in tact.
On the Basis of the foregoing these are my views and observations:
I recommend establishing a long position in Micron Technologies. Open your position with only 1/4 of whatever capital you intend to commit to Micron Technologies at $5.89. Purchase the remaining 3/4 of the position at $5.42 and stop out at $5.20. Do not post your stop out. I have said it before but it is so important that at the risk of being redundant and in an abundance of caution I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again. In addition, when a stop out is triggered it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the "Flash Crash"? I would be looking to exit the trade at an upside price target of $6.61. Do not allow this position to exceed 5% of your overall portfolio. You should seriously consider writing puts to establish your initial position. If the stock is put to you, then the premium will bring the cost basis down and if not then the premium is money in your pocket.
There is always the possibility that the trade may not work out.
There Is Never A Sure Thing (particularly on a short)
Investors must realize and recognize that there is never a sure thing. Sometimes events that have a low probability of occurring bring forth very serious consequences should they come into being. Investors must judiciously consider what the inherent practical limits are and how much they stand to gain in relation to the risks involved in establishing any position.
In addition, persistence can become desperate folly by allowing a losing position to become a viable argument for deciding on a new position. Rather, such decisions should be based on the current and soon-to-be circumstances.
Any position in which one unexpected factor has a significant impact on your portfolio is the result of poor planning. It is a fault most commonly associated with people who want to explain away their losses. SUN TZU -Art of War "Use an attack to exploit a victory, never use an attack to rescue a defeat."
If you follow the process recommended and the trade does not work, the overall loss in this model is $3,000.00. That amounts to .003 of the overall portfolio (theoretically valued at $1,000,000).
And finally, never be a brave and brainless investor because a fool and his money are soon parted.
A portfolio of $1,000,000 should position size in the following manner.
This is a trade, not an investment. Be ever vigilant.
That's it for now…. Have a nice day.