While semiconductors have been stealing the limelight, traders mustn’t forget the large-cap technology companies that are holding firm, like Microsoft Corporation (NASDAQ:MSFT). The software sultan is a stone’s throw from record highs and appears poised to attack the pivotal century mark in the week’s ahead. Let’s talk about the MSFT levels worth watching and how to exploit its continued ascension.
Unsurprisingly, the weekly chart boasts an uptrend for the ages. And why shouldn’t it? The Nasdaq has been and will likely continue to be a leader, and Mr. Softee is one of the kingpins in the space.
Last month’s crash inflicted little, if any, damage to MSFT’s long-term trend. Note how the 20-week moving average halted the swoon and maintained the integrity of the uptrend. What’s more, the weekly trend is increasing in momentum. Just look at how the short-term average’s rise is steepening. It’s a thing of beauty.
Turning to the daily chart reveals February’s drop-and-pop, and the subsequent chop has formed an ascending triangle pattern. The higher pivot low shows increased buying aggression. While Microsoft stock may need to churn for a bit more before mustering up enough strength to breach resistance ($96), a breakout seems inevitable.
Traders have two choices — either deploy bullish positions now in anticipation of the coming break or wait for resistance to give way, then jump in.
The MSFT Breakout Trade
Rather than buy calls outright, let’s build a spread trade to minimize time decay and volatility risk. Additionally, to provide adequate time for MSFT to reach $100, we’ll use May options. Buy the May $95 call and sell the May $100 call for a net debit around $2.05. If you wait until the stock breaks $96 before pulling the trigger, you’ll have more confirmation but will have to pay upwards of $2.40 for the trade.
The max loss is limited to the initial cost and will be forfeited if Microsoft sits below $95 at expiration. The max gain is $2.95 and requires the stock to lift above $100 before capturing it.
If you’re looking to reduce the risk, then consider exiting if MSFT falls below the 50-day moving average at $90.
As of this writing, Tyler Craig didn’t hold positions on any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.