We will look at two stocks today that are nearing a key breakout on their price chart — tech giant Micron Technology (Nasdaq: MU) and lighting company Acuity Brands (NYSE: AYI).

The two stocks have formed popular technical price patterns that are closing in on an inevitable breakout.

It may come from earnings this week or it may be more gradual in the weeks that follow. But don’t get fooled into thinking that the initial move on the breakout is the only move worth trying to time.

I ignore the guessing game on the direction of the breakout altogether.

Because once the breakout occurs, these stocks make real money for investors.

While they could see 5% or 10% moves on earnings, the move that comes after the breakouts could easily hit 20%, 30% or even 50% in a matter of weeks.

That’s why I don’t gamble on the earnings event itself.

By waiting for that initial move to play out, we can find even greater profits by following the trend.

Click here to learn about the unique way that I trade earnings season…

Now let’s dive into this week’s Earnings Edge.

Earnings Edge Stock No. 1: Micron Technology (Nasdaq: MU)

Earnings Announcement Date: Wednesday, after the close.

Expectations: Earnings at $1.70 per share. Revenue at $7.2 billion.

Average Analyst Rating: Outperform.

This semiconductor stock has had a rough go of it lately.

Shares have dropped over 15% in the last two months, and the slide may not be letting up.

We know tech stocks were struggling with manufacturing delays and a chip shortage. But we are seeing other tech stocks, especially semiconductor companies, rise strongly over the last month.

That’s not the case for Micron Technology heading into earnings this week.

Traders have caused the stock to get stuck in a falling wedge pattern. Take a look…

MU’s Falling Wedge Pattern Hints Toward Breakout

MU's Wedge Pattern

Source: Optuma.

This has a falling resistance level in red, closing in on a falling support level in green. As this narrows, a breakout point becomes imminent and will pave the way for the stock over the next few months.

It only makes sense for that to come after earnings this week, setting the tone on Micron.

But when we look at the options market, traders are only betting on a 3% move this week on earnings. That’s likely not enough to trigger a breakout move, but it all depends on where the stock is sitting before earnings get reported.

Either way, look at the trend.

The stock has struggled for months now, and earnings may not be enough to turn the tide.

This is a key reason why I don’t like gambling on earnings. I know not to fight the trend, but a little bit of good news and it could pop on its report.

I’ll stay patient and wait for a breakout that we can ride for the next few months to find more profits.

Stock No. 2: Acuity Brands (NYSE: AYI)

Earnings Announcement Date: Thursday, before the open.

Expectations: Earnings at $2.26 per share. Revenue at $837 million.

Average Analyst Rating: Outperform.

Acuity is a lighting company and a much smaller stock than Micron — only one-tenth of the market cap — making its stock more prone to volatile moves.

The stock jumped more than 10% on its last earnings report, and this time around, the options market is already pricing in a 5% move.

That means you need the stock to jump at least 5% just to break even on a trade. If it pops 4%, you still stand to take a loss even if you have the direction right.

That’s a key reason I don’t like trading options around earnings — the premiums tend to be pricing in most of the move already.

But if there was one stock you’d bet on breaking out higher, AYI’s price chart shows it:

AYI’s Ascending Triangle Is Hard to Resist

AYI's Ascending Pattern

Source: Optuma.

The stock is trading in an ascending triangle pattern, with a rising support line running up against a sideways resistance level.

Now, if you don’t know anything about ascending triangle patterns, let me fill you in.

They tend to be continuation patterns, meaning it’s a period of consolidation before the stock continues heading in the same direction before it occurred. In this case, AYI was rising, heading into the triangle pattern.

Then we can get an expected move once the breakout occurs by simply taking the height of the pattern (the high point minus the low point) and adding it to the breakout level.

If the stock breaks out to the upside, we are looking at a sharp move up to $215, or more than 10% from the current price.

AYI may not see that big a move on earnings this week, but it’s likely we see the breakout on earnings. We can use that to trade Acuity as it continues heading in the breakout direction over the next few weeks.

Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit ProfitsAutomatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.

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