Microsoft Corporation (MSFT) — This is the world’s largest software company, but it is no longer a high-growth IT company. Therefore, global economic stagnation poses a risk for owners of MSFT stock, as does continued strength in the U.S. dollar.
Additionally, S&P Capital IQ Equity Research, which rates MSFT stock a “Hold,” cites a number of concerns. These include exposure to the sluggish PC market, a slow recovery in enterprise IT spending, loss of market share in smartphones and mobile devices, and trouble with timely product releases.
Turning to the chart, after rising from a low just under $40 in August to around $56 in December, MSFT stock double-topped, flashing twin sell signals from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR).
Shares then fell to about $49 and bounced from the significant support line there. But MSFT stock failed to set a new high, reaching $55 and falling to support at $49 again. This level has taken on new significance since the 200-day moving average has risen to meet it.
Despite Monday’s 1.6% gain in MSFT stock, volume was anemic and shares were halted at the 50-day moving average at $53.
MSFT stock appears to be an ideal short sale candidate at $53 with a target of $49 for a potential gain of nearly 8%. Be sure to enter a stop-loss order at $58 to protect against the possibility of theoretically unlimited losses in the event of a rally. And be aware that if you hold shares short through a dividend, you will be responsible for covering it.
Traders can also check out put options on MSFT stock to leverage the expected downside move.
