Trade of the Day: MSFT Stock in Danger of a 15% Drop

All signs point to this being a good time to sell Microsoft Corporation

By Sam Collins, InvestorPlace Chief Technical Analyst

Microsoft Corporation (NASDAQ:MSFT) — MSFT stock is up more than 4% in the past two days as the broader market recovered from the Brexit panic. But all signs point to this being a better opportunity to sell rather than buy shares.

Gone are the days when the world’s largest software company was a high-growth name. Now it is heavily exposed to a waning PC market and also feeling the negative effects of a stronger U.S. dollar.

Earlier this month, Microsoft announced the acquisition of professional social media company LinkedIn Corp (NYSE:LNKD) for $26.2 billion. Analysts note that Microsoft paid a premium for the company and have raised questions about LinkedIn’s growth. Profit margins could suffer from difficulties involved in merging LinkedIn, weakness in the global economy and declining PC sales.

Turing to chart, we can see MSFT stock formed a double-top above $56 with peaks in late December and April. Support at $49 was penetrated on the Brexit sell-off, during which MSFT stock also flashed a death cross (50-day moving average crosses down through the 200-day).

A jump back over the support line at $49 could negate the breakdown. However, volume on the recovery bounce was so low that it appears to be based on short-covering rather than new buyers. MACD is on a sell signal.

Traders should consider selling MSFT stock short at $50 or higher with a downside target of $43 for a potential gain of roughly 15%. Short selling is a speculative technique with the possibility of theoretically unlimited losses, so a stop-loss order be entered at $54.

Also, be aware that if you hold MSFT stock short through an ex-dividend date, you will be responsible for paying it to the owner of the shares. Microsoft pays a quarterly dividend of 36 cents per share for a forward annual yield of 2.9%, and its next ex-dividend date is expected in mid-August.

MSFT Stock Chart
Click to Enlarge

Chart Key

Article printed from InvestorPlace Media,

©2018 InvestorPlace Media, LLC