Microsoft: buying opportunity or game over?

I’ve mentioned in most of my speaking engagements, as well as in this blog and on my BNN appearances that one of our ValueTrend favorite long-term stocks is MSFT. Yesterday, the stock reacted negatively to a surprise (negative) earnings report. While there are many moving parts to this company, it came down to overseas business and business sales as being the weak side of the story for MSFT. New developments such as the cloud are growing for the company, but not enough to offset the other side of the business – at least at this point.

When making buy and sell decisions, we at ValueTrend utilize technical and fundamental analysis. Fundamental factors that can influence a sell may include unexpected or disappointing financials or guidance, and/ or deteriorating fundamentals. While the recent results were disappointing, the fundamentals do not appear to be deteriorating in MSFT’s longer termed plans. Fundamental factors may drive our sell decision, although it is typically trend analysis that trumps in this area. So lets get right down to the technicals.

Yesterday’s selloff brought the stock down to its last significant low on the weekly chart near $42 – again see chart above. It also cracked the 200 day (40 week) MA. I’ve drawn a blue support line on the weekly chart below. For those who have not read my book Sideways (if you have not, may I humbly suggest you do to enhance your pragmatic technical analysis skillset) – you may recall my “3 bar rule”. That is, from whatever timeframe you are working in, a break should only be considered legitimate if it lasts longer than 3 bars. A longer termed play like MSFT is followed on a weekly chart. Thus, we would only be concerned by a concurrent break of the last low ($42) and 200 day MA (currently at $44.40, but that will change) that lasts over 3 bars—three weeks in this case. Our weekly chart also shows us that at this point, the most important long termed factors are mixed. Price is holding above support. The 200 day has been penetrated. Cumulative moneyflow (bottom pane) is still trending bullishly. But comparative strength to the S&P500 just broke the 20 day EMA (middle pane on chart above).

The long termed monthly chart above shows us that the breakout of late 2013 (where we bought) is still holding. The big picture is still bullish.

Our take on this stock: we will wait out the next few weeks. A break of $42 that lasts 3 weeks will be a sell signal. We continue to hold this stock.

Keith on BNN

I’d like to invite you to tune in to BNN television this Friday January 30^that 6:00 PM for their 1-hour call-in MarketCall show. Phone in with your questions on technical analysis for me during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]