Microsoft Corporation (NASDAQ:MSFT), after a bunch of bumping and grinding, looks a lot like the broader stock market year-to-date: Neither MSFT stock nor the S&P 500 have much to show for their moves.
Still, not only do Microsoft shares continue to look attractive through a 12-month lens, but I also see a nearer-term opportunity that could see MSFT stock float higher into the later part of August, particularly should the broader market keep its bid.
When Microsoft reported its latest batch of earnings on July 21, the company came in with profits of 62 cents per share on revenues of $22.2 billion, both of which topped analyst expectations. While sales of Microsoft Windows were expected to decline, the rate of change wasn’t, which promptly led to some quick profit taking in the stock in the days following the earnings release.
In recent days, Microsoft released its Windows 10 operating system, and while so far no real ‘issues’ arose from the mass downloading of the software, headline risk remains that a major bug slows down people’s computers. (I’m not expecting this, but for the sake of risk management in any MSFT stock trade, it’s worth pointing out.)
MSFT Stock Charts
Moving to the charts of Microsoft, we see that the stock’s breakout in late 2013 past a longer-time line of resistance remains the most bullish price action in years.
After the stock rose on this momentum into a late 2014 high, a consolidation phase (blue box) set in that looks constructive in nature and should allow MSFT stock to continue to rise over the next 12 months.
As we find ourselves in the depths of summer — where the odds tend to favor a lift in stocks, at least into the second half of August — I am currently looking at the near-term potential for Microsoft stock to head higher.
On the daily chart below, we see that MSFT’s price action since late April has essentially traced out a bullish flag formation, which found support near the 100-day moving average (blue line) in early July. The post-earnings selloff in the stock then found support in late July at the confluence area of the 200- and 100-day MAs, which also served to form a higher low versus the early July lows.
With Tuesday’s 1.56% rally, MSFT stock marginally pushed past the diagonal resistance line from May, and thus out of the bull flag pattern.
The technicals combined with the seasonal pattern now favors a move by MSFT stock back toward its May highs (blue horizontal) close to the $50 area.
Any sharp bearish reversal would call off the trade.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
