Shares of technology giant Microsoft (MSFT) rallied more Tuesday to reach fresh multiyear highs, at least partially on the back of news that the company has formed an agreement with Dropbox. While immediate-term overbought, MSFT stock still looks promising to buy on the next dip or consolidation phase for a rally into year’s end.
Microsoft’s agreement with Dropbox will allow users of the Microsoft Office software to share and manage files using Dropbox, both through the website and the mobile device apps. Parts of this functionality will be available as soon as a few weeks from now, while the full online accessibility will be available within the first six months of 2015.
MSFT Stock Charts
Looking at the multiyear weekly chart of MSFT stock, note the orderly incline since early 2012, when the stock first broke out of a higher base that followed the initial V-shaped reversal off the early 2009 bottom. From there, the stock moved higher in a stair-step way that not only allowed trend followers to roll higher with the stock, but also gave institutional investors something to sink their teeth into as the stock was lacking any big volatility bursts.
On the momentum side, the Relative Strength Index (RSI) at the bottom of the screen continues to make a series of higher lows, although Tuesday’s new highs have not yet been confirmed with new highs in the RSI.
Given the positive bigger-picture look of MSFT stock, it looks likely to move higher still into year’s end, particularly if the broader market has its usual Santa Claus rally.
As an important side note, from a risk management perspective, many active investors often find it easier to trade a stock into year’s end as they have a defined and obvious time stop to honor, as well as the favorable seasonal winds at their backs.
Looking at the daily chart of MSFT stock, note that it also staged a V-shaped recovery in recent weeks along with the broader market. For MSFT, the bounce occurred right where it should have, namely at the lower end of its up-sloping trading range since mid-2013 (blue line). Meanwhile, the stock has again reached the upper end of this range and is well-overbought from a momentum perspective, and the rally off the mid-October lows in its vertical state is unsustainable at this point.
Active investors and traders could look to buy MSFT stock on any consolidation in price or in time for an eventual rally toward $50. In particular, a pullback toward the $45.50-$46 area would be a spot where risk/reward on the long side looks attractive for an entry for a year-end rally.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
