It’s the dead of summer on Wall Street, and despite turbulence in Washington the broader stock market is holding up and trading in a choppy sideways move. Shares of large cap technology stocks such as Microsoft Corporation (NASDAQ:MSFT) have been out-performing all year and yet again look well-positioned for another squeeze higher.
In a special note to my clients yesterday, I once more warned that August is a dangerous month for traders, as the usually choppy trading leads to many fake-out moves and thus losses for traders.
At the same time, August also has a tendency to see unexpected and often short-lived waves of volatility (such as we witnessed last week) that catch many traders flat-footed.
All in all, my best advice for August is for market participants to take a step back, become more selective and reduce position size. The September-November period often times is a much superior time for active market participants, and it’s only a few weeks away. Remain patient and don’t force trades that aren’t there.
MSFT Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
With that in mind, let’s take a glance at the multiyear weekly chart of MSFT stock, which year-to-date is higher by about 18.5%. Note that through this lens the ascent has been orderly but as a result of the year-to-date ascent now is back at the very upper end of trend while the MACD momentum oscillator at the bottom of the chart is at overbought readings that in the past have led to consolidation periods in the stock.
This here is the big-picture look, which is to say that in my eye, the current juncture does not make for a great spot to buy MSFT stock for an intermediate- to longer-term holding period.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that the most recent rally since the summer of 2016 has largely held the yellow 50- and the blue 100-day moving averages as support, while also pushing higher within a well-defined up-trending channel. Currently MSFT stock in this time frame as well is trading near the upper end of the channel where all else being equal upside should be limited.
However, considering the trend in large cap technology such as MSFT stock remains decisively higher and that the trend should be your friend until it ends, active investors and traders could consider a nimble trade continuation trade at this juncture.
Specifically, MSFT stock could be bought around the $73.50 area for a next upside target closer to $77. Any bearish reversal would signal a stop loss, upon which the stock can only be bought again following a notable bullish reversal.
Check out Anthony Mirhaydari’s Daily Market Outlook for Aug. 17.
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