Despite some back and forth in the major indexes last week, investor sentiment looks strong, and we think now is a great time to sell a put write on Microsoft (NASDAQ:MSFT).
A lot of that positivity came from the fact that the U.S. and China have finally agreed to a trade deal, though we are missing many key details.
Last week, however, investors just seemed pleased to know that no new tariffs would be imposed on Chinese imports on Dec. 15. We also got confirmation that tariffs on $120 billion in products imported from China would be cut to 7.5%.
The downside of the trade news is that there is still uncertainty around when it will be signed and what the next steps are for dealing with the other tariffs on Chinese goods. That uncertainty may help explain why there hasn’t been more of a positive reaction yet in the market.
Still, the bullishness in the market last week helped push MSFT higher, and we think the stock is strong enough to hold onto its gains until early January.
Betting on Tech Through the end of the Year
The technology sector has been one of the strongest in the market in 2019. If you look at the chart of the Technology Select Sector SPDR Fund (NYSEARCA:XLK), an exchange-traded fund that tries to match the performance of the technology sector of the S&P 500, you can see that it has gained more than 40% since the beginning of the year. The S&P 500 is up by just over 25%.
Daily Chart of Technology Select Sector SPDR Fund (XLK) — Chart Source: TradingView
MSFT has been one of the best in the best performers in the sector, rising by over 50% since the beginning of 2019. The company has beaten earnings per share expectations over and over again this year, and it just announced the Xbox Series X, a new game console that has some impressive features.
A new product is just the thing to increase excitement around a stock, but as you can see from MSFT’s technical performance, it doesn’t need much help.
MSFT is Higher Than it’s Ever Been
MSFT moved higher last Thursday and Friday, breaking above short-term resistance at $152.50. We expect the old resistance level to act as support going forward, and we think MSFT will remain above that level through early January.
Daily Chart of Microsoft Corporation (MSFT) — Chart Source: TradingView
With potential support at $152.50, traders have an excellent strike price for any put writes they sell on MSFT.
For an expiration date, we recommend sooner rather than later. MSFT will report earnings on Jan. 28, 2020, and there may be some volatility as we get closer to that date. There’s also no telling what will happen at the start of a new year. Setting the expiration earlier in January should provide traders a decent premium without forcing them to take on too much risk.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.