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 getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications#1 Support near Consolidation Area: The daily chart shows that the stock was trading within a range for several months.
This indicates consolidation.
The consolidation area is marked as a green color rectangle in the chart.
The stock had then broken out of the consolidation area and surged higher.
Currently, it has taken support near the lower end of the consolidation area. This seems like a good support level for the stock to surge higher.
Daily Chart – MSFT
#2 Oversold Stochastic: Currently, the %K line of the stochastic is poised to cross over the %D line. The stoch is also near oversold levels. All these indicate possible bullishness.
#3 Oversold RSI: The RSI is currently near oversold levels in the daily chart. This means that the selling pressure is reducing and new buyers are about to come in. This is a possible bullish indication.
#4 Above MA: The weekly chart shows that the stock is currently trading above its 200-week SMA. This indicates that the bulls still have control.
Weekly Chart – MSFT
#5 RSI Oversold: In the weekly chart as well, RSI is near oversold levels. This points to the possibility of an upcoming bullish reversal.
#6 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its upmove. MSFT is currently near the 38.2% Fibonacci level as seen in the weekly chart. This seems like a good support area for the stock.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for MSFT is above the breakout level of the consolidation area. This translates to a price of about $141.50. The buy level is marked as an orange dotted line in the daily chart.
Alternatively, you can also purchase the shares of MSFT if it corrects to the support level of around $131.50.
TP: Our target prices are $150 and $160 in the next 3-6 months.
SL: To limit risk, place a stop loss near $135.80 (for entry near $141.50) and $125.90 (for entry near $131). Note that the stop loss is on a closing basis.
Our target potential upside is 6% to 22% in the next 3-6 months.
- Entry near $131: For a risk of $5.60, our first target reward is $18.50 and the second target reward is $28.50. This is a nearly 1:3 and 1:5 risk-reward trade.
- Entry near $141.50: For a risk of $5.70, our first target reward is $8.50 and the second target reward is $18.50. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the support level of the consolidation area with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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