Micron Minute: The Crowd Has Arrived, And That's The Problem
How to know a move is closer to the end than the beginning.
I don’t get on LinkedIn very often. But I was just checking if I had any messages the other day, and found a message from a reader of my work. It was from just before Micron’s December earnings report, and they were sharing some information they had as a customer of Micron MU 0.00%↑.
While I get messages like this from time to time, I found it interesting I was getting unsolicited data. Don’t get me wrong, another data point for the fundamentals doesn’t hurt, but they were just putting this out there, likely to help me help them with better analysis. I appreciated it.
But what I noticed is the last half of the last line: “Micron will report explosive revenue growth.”
It seems they did their own analysis using their invoices and watching their costs go up, I’m sure.
While I was perusing Seeking Alpha’s home page this morning, it reminded me of how much bullishness surrounds Micron now. So much so, the article at the top of my trending list was an article titled “Micron: The Unsung Hero Of The U.S. AI Infrastructure.” My first thought was, “Hey, that’s my line!” For the record, I don’t care; it’s not a trademarked term. But my second thought was, “Unsung? What?”
Where has this person been? Micron has been sung at least in the mainstream for the last three months, and for those actually somewhat following it, the last six months.
Anytime I see the mainstream getting on board with a stock and claiming “it’s going to double from here for sure!” we’re getting into very shaky territory. In other words, when everyone arrives at the same conclusion and clusters to one end of the trade, the move is likely nearly complete.
This isn’t surprising, though, as the chart is saying we are likely near a top (the question being a short-term, medium-term, or long-term top). When tops form, bullishness is at its peak. Bullishness is never at its peak when it’s time to buy. Likewise, when bearishness is at its peak, it’s typically not time to sell. These turning points in sentiment are what provide tops and bottoms. The only question here is, can there be anymore bullishness from here?
The valuation gymnastics I’m seeing trying to value Micron have certainly reached insane levels, and well beyond just the standard P/E ratio exercise that has never helped Micron and honestly doesn’t help anyone. We’re at the point where we’re comparing non-fab companies and their valuation to Micron on all kinds of metrics (like EBITDA/EV). Even if I were a die-hard fundamentals and valuation analyst, that right there is a rookie mistake, and is what feels “OK” to publish when things are at all-time highs.
We’re seeing the linear market fallacy play out: assets going up will continue to go up.
Now, most of you know logically that doesn’t happen. But you don’t invest with your logic, you invest with your emotions. When things in your portfolio are super green, you are pumped. When things are super red, you’re feeling a bit of despair. It’s ok, I know the feeling. The entire market does. That’s why I can track and analyze sentiment via the chart. It’s also why I’ve been able to separate emotions from my decision-making - an ongoing process, mind you - I have something with definitive bounds and probabilities to work with. It keeps me honest when sentiment is mapped out.
Overall, the bullishness is reaching peak levels for Micron, and that’s concerning, even with a long position I’ve cut down 50% - something I’ve shared over the last several weeks. But with Micron approaching its next earnings report in a few weeks, the setup is getting riskier for higher highs. While it may provide another opportunity north of $450, I’m remaining very cautious, as the empirical evidence is supporting the chart evidence quite a bit lately.
But the risk is this bullishness can carry on for a bit longer than most will anticipate. That’s why I’m not calling the top yet (no structural chart evidence, yet). Until we get some support levels to break on the chart, it can continue higher, but it is not a highly probable situation and risk is now to the downside.
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