Shares of Microsoft Corporation (NASDAQ:MSFT) continue acting strongly in absolute terms and the recent breakout looks to continue in the near future. However, MSFT stock is also displaying relative strength versus the broader market and the technology sector, which in my mind is where the next leg higher will result from.
When I last discussed Microsoft on Dec. 12, the most recent breakout was just taking hold and I offered next near-term upside targets at $88 followed by $90. The first profit target has since just about been met and I still expect the next target near $90 to become a reality in the not-too-distant future.
On the multi-year weekly chart, we see that the uptrend has continued to steepen over the past few years. While this does increase and, through a multi-month/quarter lens, beg for a better consolidation period, what’s promising underneath is the relative strength (blue line at bottom of chart).
While MSFT stock is showing relative strength versus the S&P 500, it is also showing relative strength versus the technology sector that it belongs to. In fact, in relative terms, the stock looks increasingly giddy for a breakout — see the black horizontal line.
To be clear and important to note is that this relative breakout is not something that has to take place imminently considering that this is a multi-year weekly chart. In other words, time frames of charts must be kept in mind and perspective.
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the daily chart note that the consolidation period since late October has allowed MSFT stock to work off some of its overbought conditions. This is well represented by the MACD oscillator at the bottom of this chart having mean-reverted lower.
Although the stock is still trading above its intermediate-term up-trending channel (purple-dotted parallels) and thus also in the near-term at some risk of a mean-reversion move lower before a more meaningful leg higher can take hold, the relative strength should keep any pullback at a healthy level.
The first-half December breakout still holds and, so far, the pullback in the stock from the past few days is merely retesting the previous level of resistance around the $85 area. In other words, my near-term call for a next upside target around the $90 mark remains valid as per my analysis.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Check out Anthony Mirhaydari’s Daily Market Outlook for Dec. 27.
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