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 gearing up for a surge as per its latest charts.
Bullish Indications
#1 Channel Breakout: As you can see from the daily chart, the stock was trading within a trend channel during the past few months. This is marked in the daily chart in pink color. Currently, the stock has broken out of this channel. This is a possible bullish sign.
Daily Chart – MSFT
#2 Trading Above MAs: The stock is currently trading above its 50-day SMA as well as 200-day SMA, which implies that the bulls are currently in control.
#3 Bullish ADX and DI: The ADX line has currently started to move up from below –DI and +DI lines. The +DI line and the ADX line is also currently above –DI line. All these indicate possible bullishness.
#4 MACD above signal line: As you can see from the daily chart, the MACD line (blue color) is currently above the MACD signal line (orange color), indicating a bullish bias.
#6 Flag Pattern Breakout: As you can see from the weekly chart, the stock was in a strong uptrend, after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in pink color lines. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). The stock has currently broken out of the flag pattern, indicating possible bullishness.
Weekly Chart – MSFT
#7 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.
#8 Bullish Stoch: The weekly chart shows that the %K line of the stochastic is above the %D line which is a possible bullish indication.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of MSFT if it trades above the price of around $234.00.
TP: Our target prices are $245 and $260 in the near-term.
SL: To limit risk, place a stop loss near $227.00. Note that this stop loss is on a closing basis.
Our target potential upside is 5% to 11% in the next 3-6 months.
For a risk of $7.00, the target rewards are $11.00 and $26.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the uptrend channel and flag pattern. 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 its sector.
Happy Trading!
Tara
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