Although strong, Micron's (NASDAQ:MU) results clearly failed to impress investors, as was expected in our pre-earnings analysis based on options betting. The stock even attempted to break out, but that attempt has failed miserably as investors clearly fear that a peak in the cycle is near.
Shares are now down nearly 20% since peaking in mid April, and analysis of the stock suggests downside risk is very high. We have observed more bearish options betting in recent days, suggesting a downside to around $75. The problem is once that happens, the flood gates likely open because the stock will have fallen below a key level of technical support, and that could send the shares to as low as $69, as we noted in our pre-earnings analysis.
Results
There were a few keys to the conference call that appeared to reveal a lot about the company's state of the company's mindset. It was revealed on the conference call the company had a buyback of just $150 million in the quarter, which was one of the very first questions asked. The company noted there was nothing to read into there, but the stock has fallen nearly 20% from its April highs, and at the very least, has caught some investor attention as to why no shares were purchased.
The company also noted that it planned to increase capex by a minimal amount for 2021 to $9.5 billion. Investors have big expectations for capex in fiscal 2022. Consensus estimates are currently forecasting capex of $11.5 billion.
The company has taken a very conservative approach to capex and may signal the company fears a turn in the cycle or demand.
Additionally, the company reported better than expected quarterly results, at $1.88 per share, which was better than the consensus analysts estimate. However, the EPS missed the street high, which was $1.93 per share. Additionally, sales also beat estimates, at $7.422 billion, but missed the high end of the range, which was $7.45 billion. While it may be hard to fathom that beating consensus is no longer good enough, that may very well be the case, as the stock ran up nearly 14% in the results.
Bearish Bets
This is likely why the stock's post-earnings performance has been so poor and likely leading to more traders betting the stock falls further. On July 2, the open interest for the July 16 $76 puts rose by roughly 17,500 contracts. The data shows that trader paid around $0.70 per contract for the options and is betting the shares are below $75.30 by the expiration date.
Now on July 7, we see the open interest for the August 20 $80 puts rise by more than 6,000 contracts. The trader bought these contracts on the ASK paying $3.25 per contract. This would mean that the stock is trading around $76.75 by the middle of August. This would be for the trader to break even on the purchase of these puts. This is a fairly large bet, too, with premiums paid of almost $2 million.
Bearish Chart
Additionally, we can see that the stock tried to break free of a downtrend starting on June 25. However, that didn't last, with the share, giving back the gains a few days later. The stock has now fallen back below the trend, suggesting a failed break-out attempt. If the stock falls below support around $77, then it likely has further to fall, with one last support region at the 200-day moving average around $75.25. After that, it could easily fall back to roughly $69.
There's a very good chance the stock falls back to $69, too, with an RSI that is at 42 and has been trending lower since December. This indicates that bearish momentum is in control of the stock, and it hasn't bottomed yet. The MACD is indicating the same bearish patterns.
Despite the results, the market is speaking loudly here and has been for some time. Clearly, the risk for further downside seems greater than upside at this point, with plenty of reasons why.
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