Business strength and other supportive items both on and off the chart have Microsoft (MSFT) in position to challenge its all-time highs with extra muscle and firepower.
Let me explain.
Sometimes referred to by traders as “Mr. Softy,” Microsoft stock nonetheless has a lot going for it as we head into the final stretch of 2015.
For starters, the broader market is now in the seasonally strong “Best Six Months” calendar period, which can work in Microsoft stock’s favor. Additionally, a shift in Fed policy and first nudge in rates has been historically a strong event for the tech sector and of potential benefit for the Microsoft stock price.
The technology sector has averaged a gain of 11% during the six months following action by the Fed. And more and more investors are bracing for a December hike; that potentially acts as another support for Microsoft stock.
Microsoft is also coming off a strong earnings report which featured a profit and sales beat and which proved to be very popular with Microsoft stock investors.
Microsoft’s CEO also likely assisted the lift in Microsoft stock by noting the company was making “strong progress” across key product offerings outside of the shrinking PC market, which Microsoft is still highly reliant upon.
Microsoft Stock Weekly Chart
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Over the past fifteen months, Microsoft stock has managed to reset its base count with a large, irregular double-bottom pattern. In general, this is bullish for shares of MSFT going forward.
Base count resets like this one in Microsoft stock are important, as too many bases and too little corrective activity can lead to excess optimism and unmanaged profits. In turn, that bullishness can become investors’ own worst enemy as everyone attempts to exit at the same time.
Currently and following a strong earnings-inspired breakout from the double-bottom base, Microsoft stock has established a very steady, flat, tight base over the past month. And as Microsoft’s base count is at two, the well-built formation should act as a sturdy platform for higher prices.
A breakout above the pattern would put the Microsoft stock price within spitting distance of its split-adjusted all-time high of $59.97 set back in late 1999. Our view is, given the other anecdotal and supportive evidence, that the prior high could be easily eclipsed over the next couple months.
Microsoft Stock Long Call Strategy
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One consideration with a long call like this is that it doesn’t initially perform as strongly as owning Microsoft stock if shares simply move higher. But with each $1 increase in Microsoft stock, the trader moves closer to having a limited risk position which will act like being long stock, but with guaranteed protection.
Additionally, as this contract is part of the next earnings cycle, long-volatility risk is reduced, and as it is a February contract, there’s plenty of time for Microsoft stock to give the trader a profitable move before time decay becomes an issue.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
