Valufinder Group, Inc.

IMMINENT BREAKOUT IN MU? I favorably profiled premier memory maker Micron/MU in a post on Tuesday, February 20 and titled “MU? Off to the Races?” It remains to be seen whether such a race materializes, but today’s action is encouraging. Indeed at last look the stock, which lagged yesterday’s market-best 2.42% rally in the SOX, was trading at $99.18, up 3.79%, 17 basis points better than the overall index on an upgrade by investment bank Stifel, who argues that it offers the most compelling growth/valuation ratio among larger-cap AI plays. Moreover, MU will have emerged from the deep more than two year cup-like consolidation if it closes above $97.36, the multi-year recovery high set in January 2022. As noted in the aforementioned post, the depth of the consolidation is sufficient to support an arithmetically measured move to $144.68, a potential 59.60% return, intermediate to long term, off the price at which it was then trading, a smaller but still substantial 45.88% return off the current $99.18.   As also noted in the February 20 post, the measured technical potential was 11.82% higher than even Wall Street’s most aggressive 12-month fundamental target, then $129.39, but which has since risen to $140.00, only 4.68% less than the technical target. However, the consensus target is only $96.64, less than the current $99.18, the strictly technical ‘call” therefore contrarian. Regarding the earnings outlook, MU, which has been losing money over the past few quarters due to the severe inventory correction in the memory market, is expected to do so again in the current quarter ending in early March but the company is forecast to turn the corner in the ensuing quarter ending early May. Moreover, analysts now estimate that MU will earn $6.56 in fiscal 2025, fifty-five cents more than the $6.01 forecast when I profiled the stock. That’s a hefty 9.15% increase in little more than two weeks! If estimates continue to rise, achievement of the measured technical potential may not seem as far-fetched to investors who rely exclusively on fundamental analyses and forecasts as it does today. In any event, we’ll know more come Wednesday, March 20, when MU reports its Q2 FY2024 results and issues guidance for Q3.  

NARROW AND SHALLOW PULLBACK ON PROFIT-TAKING Thanks to a late afternoon selloff, stocks declined yesterday, Monday, March 4, but the pullback was both narrow and shallow and thus represented little more than some profit-taking following the back-to-back rallies last Thursday and Friday. Indeed, seven of the eleven indices I track but only forty-three percent of components comprising the Dow, Dow Transports, Dow Utilities and SOX participated in the decline. Moreover, declines in the indices, which ranged from only 0.10% to no more than 0.42%, barely averaged one-quarter of one percent. Meanwhile the average gain in the four winners, led by an uncharacteristic 1.71% rally in the normally staid Dow Utilities, was almost three times as large. And the S&P 500 Equal Weighted ETF/RSP, the NYSE Composite and SOX, while well off their intra-day highs, again crossed the finish line at all-time highs, hardly indicative of a market under undue pressure.     Stocks received some support last Thursday and Friday from rallies in the treasury market. Benchmark 10- and 30-year rates, inversely related to price, fell 0.51% and 0.79% last Thursday and another 0.93% and 0.67% on Friday. Moreover, they finished last week at 4.180% and 4.326%, just 121 and 48 basis points higher than at the close on Tuesday, January 30, the eve of Chairman Powell’s unexpected comment that the Fed was unlikely to begin to cut rates at its next meeting in mid-March. And they were down 147 and 166 basis points from the interim highs on February 22 and 21 as the market looked ahead to a potential rate cut when the FOMC next convenes on April 30! The rallies and corresponding declines in rates were attributable to last Thursday’s economic news that a) real consumer spending, a direct GDP input and which grew an annualized 3.0% and accounted for 68.70% of total U.S. GDP in Q4 2023, fell 0.1% in January and b) that the all-items and core PCE indices rose 2.4% and 2.8% in January, still well above target but less than in December and the smallest year/year increases since February and March 2021!   But yesterday treasuries declined. Benchmark 10- and 30-year rates rose 0.93% and 0.67% presumably prompting some equity investors to take profits. Yet the Russell, small-cap proxy for investor perceptions of U.S. economic prospects and the likely path of Fed monetary policy, weathered the profit-taking better than any of yesterday’s other six losers. It fell a mere 0.10% after breaking out on Friday, when it emerged from a roughly two-month consolidation of the breakout that occurred this past December 27, when Russ prematurely emerged from a more formidable consolidation spanning more than sixteen months. At last look 10- and 30-year rates were down 1.45% and 1.40 this morning. And at 4.158% and 4.294% were only 99 and 16 basis points higher than at the close on Tuesday, January 30! Stocks in general and Russ in particular could (should?) open higher on the declines.                

PENDING BREAKOUT IN RUSS?  Yesterday, Tuesday February 27, stocks continued to consolidate gains compiled in previous rallies, rallies that sent seven of the eleven indices I track to multiple record highs. True, yesterday eight indices finished higher. And the Equal Weighted S&P 500 closed at a 52-week high, the Equal Weighted NASDAQ 100 at a record high, outperforming their cap-weighted counterparts by 27 and 23 basis points. But only 53% of components comprising the Dow indices and SOX entered the winner’s circle, 45% ex-the Dow Utilities, which rallied 1.16% on strength in 14 of its 15 components. Finally, yesterday’s gains in the indices ranged from 0.17% to 1.34% with the cap-weighted S&P 500, widely benchmarked by the institutional crowd, finishing dead last among the winners. And the mean gain was a modest 0.40%. All in all, continued consolidation.   As already noted, yesterday the Equal Weighted S&P 500 and NASDAQ 100 fared better than their cap-weighted counterparts. But the Russell 2000 best illustrated the superior relative strength in smaller cap issues. No, Russ didn’t close at an all-time high nor even at a 52-week high. But it easily topped the leader board. Indeed its 1.34% gain was 18 basis points better than the gain in the Dow Utilities, which placed second. And it was more than five times greater than the average gain posted by yesterday’s other six winners. Note, too, that Russ closed at 2,056.11, less than one-half of one percent below the recovery high, 2,066.21, scaled last December 27. At last look it was a fraction lower today but appears poised to challenge the top of the two-month consolidation in which it has been locked since completing the 26.22% two-month bull charge off the low last October 27, when it closed at 1,636.94. One of the cardinal assumptions underlying technical analyses and prognostications is that patterns are related to and tend to mirror one another. A two-month rally from October 27 through December 27. A two-month consolidation from December 28 through today February 28. Symmetry suggesting that Russ could be on the cusp of a breakout signaling the potential launch of a second leg of the bull run off that October 27 low. Assuming a breakout, the depth of the consolidation is sufficient to support an arithmetically measured move to 2,219.25, a potential 7.93% return off yesterday’ close. Decent, especially if achieved in two months, but if the second leg were to approximate the 26.22% run in the first, Russ will sky to 2,607.97 by late April, up 26.84% from yesterday’s close. Perfect symmetry? A technician’s dream but only rarely realized. And recalling that the pullback from the December 27 high was triggered by Chairman Powell’s comment in his January 31 press conference that the Fed was unlikely to cut rates when in next met in March, it seems that either technical script will require that investors come to believe that the interim data on inflation will free the Fed to start cutting rates.