Trade of the Day: Heed the Death Cross in MSFT Stock

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Microsoft Corporation (MSFT) — Despite the world’s largest software company’s domination in business systems, analysts have concerns over its sluggish recovery in the enterprise IT area. Microsoft has lost market share in smartphones and mobile devices and has had difficulties releasing new products in a timely manner.

Even before the stock market’s recent sell-off, analysts at S&P Capital IQ voiced concern over the company’s limited growth potential. They cut their EPS estimate for fiscal 2016 (ending in June) to $2.56 from $2.85 and lowered their FY 2017 estimate to $3.07 from $3.25.

For the past year, MSFT stock has traded in a relatively narrow zone compared to many other technology stocks. Support is at $40 with a resistance line at about $49. Within that zone, the midpoint is at the convergence of the 50-day and 200-day moving averages at about $45.

Although the MACD indicator recently signaled a “buy,” volume did not confirm the signal. And even though MSFT stock closed above those key moving averages on Friday, the recent death cross is serious. Therefore, the recent move up is merely a reaction rally.

Sell MSFT stock if you own it or protect your position by writing calls. Traders should sell shares short at $46 with a price target of $35 for a potential gain of 23%. However a stop-loss order should be entered at $49 to protect against the remote possibility of a move higher.

Short sellers should also check with their broker for any unusual restrictions on shorting this or any other stock. And be aware that if you hold shares short through the ex-dividend date on Nov. 17, you will have to pay the owner the 36 cents per share due.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/microsoft-corporation-msft-stock-trade-of-the-day-2/.

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