Microsoft Corp (msft) Technical Analysis February 2020

Monthly chart

The monthly chart of Microsoft Corporation (msft) indicates that the stock is in an uptrend as shown by the formation of higher-highs and higher-lows as well as the positioning of the price bars above the 50 period moving average (MA50) and the 200 period moving average (MA200). Also supporting this is the positioning of the shorter MA50 above the MA200 with both MAs sloping upwards.

A strong bullish trend

The increasing divergence of the price candlesticks and the MA50 from the MA200 indicate a strong uptrend that is growing in strength. Also lending strength to this thesis is the increasing divergence of the +DI from the -DI and the upsloping of the DMI on the ADX chart (lower half of the chart).

Support and resistance

The purple lines indicate longer term potential support and resistance areas that may be watched should prices fall. The $60 area (dark purple line) is possibly the most historically significant area which was the price from which Microsoft stock prices plunged around the year 2000 and only breached again in 2016 (longitudinal black line). A short piece was written on this period of Microsoft stock performance in the article msft 2000 to 2016: Why it’s OK to be afraid of the stock market

Considering the growth of Microsoft business, it is not likely that prices will fall to those levels – although not entirely impossible:

Amazon once went from $90 to… $5! The people who bought the stock then must be feeling pretty good about themselves.

And Microsoft stock lost about a third of its value in only about a year and didn’t regain its former peak value (around $60) until 16 years later.

Weekly chart

The weekly chart shows a previous formation and completion of a flag pattern. After a short consolidation period, the stock has broken out again.

Daily chart

The daily chart shows that since November 2019, the price movement has been clinging quite closely to the MA50, gradually moving upwards with it. However, in January 2020 it began to diverge from the MA50, rising sharply to test the potential target price (TP) seen on the weekly chart (around the $170 level) and after successfully testing it, moving up by an equal amount before consolidating into the flag pattern where it currently is – around $185.

Should prices break out of the current consolidation, a potential TP based on technical analysis would be around $198, or possibly the psychological resistance of $200.

Should prices fall, the $170 area could serve as potential support followed by the MA50 and MA200 before testing lower horizontal support levels (light purple lines).

Conclusion

Microsoft is a company that is not unknown to many of us. Its business and products are something that most of us have grown up to be accustomed with. I believe that while competition is growing in many of its endeavors, Microsoft has a strong moat in its core businesses. Whether its current valuation is in line with the company’s true business value or not is beyond my area of expertise. Whether it can grow at a faster rate, something it may achieve should it make a breakthrough in one of the major technologies of the future such as augmented reality and artificial intelligence – before its competitors – is something we can only guess at.

Technically speaking, Microsoft is in an uptrend. The trend is our friend is a maxim I follow, though I also like to always keep in mind the other half of this rule -until it reverses and screws me up good. A general rule in trading is to never go against the trend. So those who are eyeing to trade msft short term should look for bullish entries and take their profits faster if they choose to go bearish.

$200 is a potential TP if prices break out of the flag pattern. $170 area may be a support followed by the major moving averages.

Longer term support may be found around the $120-130 area which may be considered by longer term traders or investors aiming to average down on their position (should prices fall from current levels) or for the more conservative investor looking to initiate a position.

Market cycle – some word of caution

Shorter term traders and newer investors looking to make an initial entry should be cautious of the increasing divergence of the stock price from the major moving averages. Prices do tend to trade around their moving averages and any divergence should be treated with caution as prices will return to them at any time.

The markets as a whole, and individual stocks move in a cycle. Every trader and investor should do well to keep this bigger picture in mind when considering a position. Markups, when prices diverge further from the averages may herald a sell down where many lose money. Though of course, how high the markup will take prices before a sell down occurs is something no one can tell for certain.

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