Buying Pressure Pushes MU Stock Higher

December 15th, 2020 Buying Pressure Pushes MU Stock Higher Dear Reader, Yesterday, we looked at a Daily Price Chart of Etsy Inc., noting the stock's 50-Day EMA is trading above the 100-Day EMA signaling a 'Buy'. For today's Trade of the Day we will be looking at an On Balance Volume chart for Micron Technology, Inc. stock symbol: MU. Before breaking down MU's OBV chart let's first review which products and services are offered by the company. Micron Technology, Inc. designs, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. It offers memory and storage technologies, including DRAM, NAND, NOR, and 3D XPoint memory under the Micron and Crucial brands, as well as through private labels. The company provides memory products for the cloud server, enterprise, client, graphics, and networking markets, as well as for smartphone and other mobile-device markets; SSDs and component-level solutions for the enterprise and cloud, client, and consumer storage markets. Confirming a Price Uptrend with OBV The MU daily price chart below shows that MU is in a price uptrend as the current price is above the price MU traded at six months ago (circled). The On Balance Volume chart is below the daily chart. On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line. On Balance Volume Indicator ● When Close is Up, Volume is Added ● When Close is Down, Volume is Subtracted ● A Cumulative Total of Additions and Subtractions form the OBV Line Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. We can see from the OBV chart below that the On Balance Volume line for MU is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability. The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price up trend.

Confirmed 'Buy' Signal For MU Since MU's OBV line is sloping up, the most likely future price movement for MU stock is up, making MU a good candidate for a stock or call option purchase. The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat MU price to a 12.5% increase. The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following MU option example, we used the 1% Rule to select the MU option strike price but out of fairness to our paid option service subscribers we don't list the strike price used in the profit/loss calculation. Our initial price target for MU stock is 80.00 per share.

Trade with Higher Accuracy When you use the 1% Rule to select a MU in-the-money option strike price, MU stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if MU stock is flat at 71.54 at option expiration, it will only result in an 8.3% loss for the MU option compared to a 100% loss for an at-the-money or out-of-the-money call option. Using the 1% Rule to select an option strike price will result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options. The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks. The prices and returns represented below were calculated based on the current stock and option pricing for MU on 12/14/2020 before commissions. When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price. For this specific call option, the calculator analysis below reveals if MU stock increases 5.0% at option expiration to 75.12 (circled), the call option would make 41.9% before commission. If MU stock increases 10.0% at option expiration to 78.69 (circled), the call option would make 92.1% before commission and outperform the stock return more than 9 to 1. And if MU stock increases to our initial price target of 80.00 at option expiration the call option would make 110.4% before commission. The leverage provided by call options allows you to maximize potential returns on bullish stocks. The Hughes Optioneering Team is here to help you identify winning trades just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade. Start Recieving Actionable Trades Today I want to start sending YOU trades! And since you are a Trade of the Day subscriber I'm giving you a special discount on my trading service. Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing! Wishing You the Best in Investing Success,

Chuck Hughes Editor, Trade of the Day

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