The American multinational technology company with headquarters in Redmond, Washington, that develops, manufactures, licenses, supports and sells computer software, consumer electronics, personal computers, and related services; Microsoft Corporation (NASDAQ: MSFT) seems to be ready for a price correction in the near term according to its latest charts.
Bearish Move – Chart Indications
#1 Rising Wedge Pattern Breakdown: The daily chart shows that the stock was forming a rising wedge pattern during the past few months. This is a bearish pattern and is marked in pink color in the daily chart. The stock has currently broken down from the rising wedge pattern. This indicates that the price may move lower in the near-term.
Daily Chart – MSFT
#2 Symmetrical Triangle Pattern Breakdown: The stock had recently formed a symmetrical triangle pattern. It is a bearish pattern and is marked as purple dotted lines in the chart. Currently, the stock has broken down from this pattern. This is a possible bearish sign.
[hana-code-insert name=’adsense-article’ /]#3 Price below 50-SMA: The stock is currently trading below the short-term moving average of 50-day SMA, which indicates that the bears are currently wrestling for control.
#4 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#5 Bearish RSI: The RSI is currently below 50 and moving down in the daily chart, indicating possible bearishness.
#6 Bearish Divergence between RSI and Price: The weekly chart shows that there is a bearish divergence between RSI and price.
This divergence is marked as pink dotted lines. While the price was making higher highs, RSI was forming lower highs. This typically points to a possible decline in the price in the near-term.
Weekly Chart – MSFT
#7 Bearish Stochastic: The stochastic is moving down from overbought levels in the weekly chart. The %K line is also below the %D line. All these indicate possible bearishness.
#8 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the weekly chart as well. This typically indicates possible bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for MSFT is below the support area of $131.
TP: Our target prices are $120 and $110 in the next 3-6 months.
SL: To limit risk, place a stop loss at $137. Note that this stop loss is on a closing basis.
Our target potential downside is 8% to 16% in the next 3-6 months.
For a risk of $6.00, our target rewards are $11.00 and $21.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the rising wedge pattern with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
[hana-code-insert name=’oxford 1′ /]