More than ever, if you want market-weight exposure with above-average returns and less risk, look no further than Microsoft (NASDAQ:MSFT) stock. Let me explain.
It has been a solid 2019 for MSFT stock. Compared to the S&P 500’s solid gain of 18%, shares of Microsoft have doubled that return with a stunning year-to-date performance of 36%. The bullish price action has also allowed MSFT to hit record highs and become the world’s largest publicly traded company, with a market capitalization in excess of $1 trillion.
At the same time, long-time top-capitalization stock Apple (NASDAQ:AAPL) is up 28%. That leaves AAPL shares 13% below their record high set in front of last fall’s ubiquitous market correction. Not only is technical leadership lacking, Apple stock’s price trend is also a good deal more questionable.
Meanwhile, MSFT stock has continued to dazzle as its transformed from a software company dependent on the PC into a cloud services power and leader in other markets like Artificial Intelligence. The most recent evidence of Microsoft’s success was last quarter’s standout earnings report.
Of course, growth like the kind Microsoft has witnessed the last couple of years isn’t permanent. That goes hand in hand with the law of large numbers. And incidentally, following last year’s solid fourth quarter, Wall Street is prepared for modest growth deceleration when the tech giant reports earnings in less than two weeks. Specifically, total Q4 sales are expected to drop from 17% to growth of 9%.
Still, calling an end to Microsoft’s business growth appears premature.
MSFT Stock Weekly Chart
Since breaking out in late 2016 above its dot-com highs from 1999, Microsoft shareholders have enjoyed a nice run in stock price. But the gain of nearly 125% from this mostly friendly trend still looks like it has room to run. Dismissing MSFT stock’s bull market could be a big mistake.
MSFT is currently consolidating in a flat three-week base-on-base. The consolidation has formed on top of a continuation triangle. Admittedly, an initial breakdown took this strategist by surprise. More important, shares quickly reversed to form a bullish engulfing pattern breakout and hit fresh all-time-highs.
The suggested approach for entering Microsoft is to position as shares break out of the base-on-base formation as new highs are reached. This entry goes long above $138.40. On the upside, I’d set an initial target for taking partial profits near $165.
The price target is a bit more than 20% above current levels in MSFT stock and essentially mirrors the size of the rally from late December into April. In the event our enthusiasm is misplaced, for limiting potential losses in MSFT stock I’d set a stop-loss beneath $129.41.
This recommended exit is the weekly closing price of shares following last quarter’s bullish earnings reaction. It’s also the first candlestick within the triangle pattern. As much, it’s interpreted as an important price level for bulls to hold or risk having Microsoft’s uptrend turning more questionable.
Lastly, with MSFT stock risk contained to 6.5% and relative to our more bullish expectation for shares, this strategy makes sense off the price chart as well.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. 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 and StockTwits.