A pair of stories may have weighed in on Microsoft Corporation (MSFT) Monday, but one day doesn’t necessarily lead to a trend change. And for bulls in Microsoft stock, the big picture still looks quite attractive.
News of Sony Corp (ADR) (SNE) unveiling a new gaming console later this year and word of Microsoft interested in playing banker in a possible sequel of sorts to buyout firms looking to bid on Yahoo! Inc. (YHOO), appeared to have gotten the best of Microsoft stock Monday.
Microsoft stock peeled off -1.24% compared to the S&P 500’s modest gainer of 0.06%.
But while competition threats can be real and undesirable history can at times repeat itself, investors should look at the big picture both off and on the Microsoft stock chart before getting overly concerned.
As the third largest constituent in the S&P 500 — a company flush with cash that is shareholder friendly and one which continues to diversify and gain ground in growth areas such as the cloud and enterprise server markets — Microsoft stock isn’t going anywhere … except maybe up, as the MSFT chart also suggests.
Microsoft Stock Weekly Chart
The weekly annotated chart of Microsoft stock shows a MSFT ticker that’s had its fair share of ups and downs the last couple years.
More importantly for MSFT bulls, the big picture, technically speaking, emphasizes a bullishly constructive Microsoft stock chart.
Since late 2014, Microsoft stock has continued to trend higher while establishing a couple large double-bottom weekly bases. In our estimation, those formations should act as sturdy technical platforms for an even higher MSFT share price in 2016.
Currently, MSFT has lost the support of its 10-day simple moving average with Monday’s price decline. But with Microsoft stock trading firmly above its properly aligned 50- and 200-day simple moving averages — one day’s stock action doesn’t mark a trend lower.
Having said that, for bullish investors I’d recommend waiting for confirmation of trend strength and allow Microsoft to trade back above its short-term moving average and three-day high of $54.33 before pulling the trigger.
Our second recommendation would be to use a bull call spread in lieu of stock, to capitalize on Microsoft’s bullish stock chart.
MSFT Stock Long Bull Call Vertical Strategy
In reviewing the MSFT options board, the June $57.50 / $60 bull call spread is attractive given our big picture view for Microsoft stock as 2016 progresses.
Currently priced for 45 cents, the softer delta, out-of-the-money spread should trade for approximately 55 cents if Microsoft stock is able to reaffirm its price trend and rally above $54.33.
This MSFT vertical requires a move of roughly 8.4% to $58.05 to break even at expiration and a larger gain of 12% in Microsoft stock to capture the spread’s max return of $1.95, or 390%.
On the “Surface,” pardon the pun, that may seem like we’re asking a lot of Microsoft stock. But given Microsoft’s strong overall fundamental and technical picture, we remain positive.
Of course, interim profits prior to expiration can be realized if Microsoft stock begins to move up.
And bottom line, with the vertical’s reduced and limited risk characteristics and opportunity to participate in the next earnings cycle — with plenty of time on the calendar following the late April event — this Microsoft stock vertical makes even more sense.
Investment accounts under Christopher Tyler’s management currently own positions in NVDA stock and its derivatives. 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.
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