Micron is "charging ahead," but "historical shadows" are beginning to loom

Micron Technology's stock price has reached extreme levels on technical indicators, with the current deviation from the long-term trend line surpassing the peak levels seen during the internet bubble and the Windows 95 craze. Historical data shows that this signal often precedes a significant correction.

Micron has experienced a parabolic rise in recent months, with its largest monthly gain since February 2000 occurring in January this year—just before the internet bubble burst. The supply shortage and surging demand driven by artificial intelligence have pushed prices and profits for Micron and some storage companies higher.

On Monday, Micron's stock price soared 5.5%, marking the fourth closing record in the past five trading days and the 13th time this year it has set a new historical high. Wall Street is enthusiastic, with FactSet research showing that 88% of analysts are optimistic about the stock's future.

However, technical analysts are issuing warning signals. BTIG technical analyst Jonathan Krinsky pointed out that Micron's stock price is currently in a "historically overbought" state, with its deviation from the 200-day moving average reaching an all-time high. In the past, when the stock approached current levels, it subsequently fell into a bear market.

Technical Indicators Flash Red

Currently, Micron's stock price is 147% above the 200-day moving average, slightly below the record high of 152% set on January 28. This widely used long-term trend tracking indicator shows that the stock has far exceeded historical extreme ranges.

In contrast, during the peak of the internet bubble in early 2000, this deviation reached a maximum of only 98%. When Micron's stock price peaked on July 14, 2000, the deviation was 89%. Over the next three months, the stock price plummeted by 65%, and it was still down 62% a year later.

The previous record was set on September 11, 1995, when the deviation was 124%. At that time, Micron's stock price surged due to Microsoft's release of Windows 95, which triggered strong demand for storage chips, leading to supply shortages and rising prices and profits—this scenario is highly similar to the current AI boom. Three months after that peak, the stock price fell by 42%; a year later, it plummeted by 77%.

Strong Fundamentals Cannot Mask Valuation Risks

Micron's current rise is indeed supported by solid fundamentals. The supply tightness and demand growth brought about by AI applications are creating a favorable environment for the storage chip industry. This also explains why the vast majority of Wall Street analysts maintain optimistic expectations.

However, technical analysts remind us that despite strong fundamentals, extreme technical indicators suggest that "the good news has been fully priced in." Krinsky from BTIG emphasized in a report to clients that investors should recognize that the current valuation levels reflect all positive factors Technical analysts often point out that history does not simply repeat itself. Micron's stock price could theoretically deviate further from the 200-day moving average or narrow the deviation through sideways consolidation—the moving average is currently rising by about $2 daily.

Lessons from the Past Should Be Heeded

However, for investors who firmly believe "this time is different," investors in July 2000 and September 1995 may have had the same thoughts. After both historical peaks, Micron's stock price experienced significant corrections, with declines of up to 77%.

Currently, Micron's stock price has continuously reached new historical highs, and market sentiment is high, but the extreme deviation indicated by technical indicators is highly similar to the situations before the two major corrections in history. Despite favorable fundamentals, the risk signals at the valuation level cannot be ignored.

For investors holding Micron stock, it is essential to recognize that no matter how strong the fundamentals are, the current price has fully reflected market expectations, and further upside potential may be limited