Market Milestones: Downgrades!

If you are reading this, you made it through another wild week in the markets! The SPY reached another all-time high, the QQQ filled its overhead gap, and the SMH regained its 100DSMA. Strong economic data, along with MU’s blowout earnings report, fueled a mega bullish day for the markets and an incredible day for the RLT Newsletter’s portfolios. The MU position hit Target 1 and 2 for a 30% win in 8 days and the QQQ hit its target 1 for a strong $1800 gain, keeping its one year winning streak alive.

QQQ

Prosperity Portfolio Results

There are several fundamental and technical aspects worth discussing regarding our latest YOLO MOMO trade on MU. First, let’s address the analyst downgrades that hit MU on September 12th and September 16th. These downgrades came when MU was already 45% off its highs and just starting to show signs of bullish momentum. The September 12th downgrade triggered a bearish gap-and-go, driving MU to a new low, wicking out traders who had stops just below the previous low, while also filling buy orders for traders and institutions who wanted to buy MU at lower prices.

MU recovered beautifully from this slate of downgrades, forming a textbook morning star reversal off the low. This setup had many bullish signals going for it, including a hammer candle that wicked into a pocket of liquidity, RSI divergence, a massive volume shelf to act as support and an oversold status compared to its semiconductor peers. This was the point where set up the MU trade in our YOLO MOMO portfolio.

The very next day, Monday September 16th, MU gapped down 5% on news of further analyst downgrades, but this time it held above its previous low. Interestingly, this gap down worked in our favor, as it allowed us to enter the trade at an excellent price without getting wicked out like so many traders during the prior gap down. Fast forward eight days from the downgrades, negative press, and FUD—MU is now up 30%.

So, were the analysts wrong, or did they have other motives? It’s hard to say, as everyone in this business, including us, gets things wrong. What we can confidently state is that when a stock is already down 45%, a downgrade that aligns the price target with an already beaten-down level is of little value to the average investor. In fact, when this happens and the risk-reward profile shifts in the opposite direction, it often signals a contrarian buying opportunity. After all, mainstream analysts work for institutions, not the retail crowd. Their targets may serve larger interests, and understanding this dynamic is key for savvy retail traders looking to capitalize on such moments.

What’s next for MU? The earnings gap has clearly created a third wave higher. This suggests that a retest and then a new high, which pushes through the 100DSMA, should be expected. Also, can we talk about how perfectly price rejected off the 100DSMA? That was a prime location to lock in profits, which is why our Target 2 was placed there.

MU Daily Chart

If Thursday’s candle marked the high of the third wave, the fourth wave should complete between $107.00 and $104.00. In other words, MU should find support at the 200DSMA and bounce to at least $115, with a likely push into the $120s to fill, or partially fill, the overhead gap.

Hypothetically, if someone took the exact trade we outlined with 100 shares of MU—roughly a $8,700 investment—they would have already made $1,900, with 25% of the trade still active. That’s just 8 days and a few button clicks to make 29% on your money. Not too shabby!

MU 1 Hour Chart

One thing we’d be remiss not to mention here is the port workers’ strike set for next week. We’ll have a more detailed write-up coming to you on Monday morning, but be aware that this could serve as a potential bearish catalyst for equities and a possible bullish catalyst for some commodities. While it's likely to be settled quickly with minimal disruption, a prolonged strike could lead to shortages of consumer and industrial goods, driving up prices. This is not the kind of news the market wants to see just weeks after a 50-basis-point cut from the Fed.