How to Trade Microsoft (MSFT) Stock Right Now

Today we’ll walk you through a trade idea with Microsoft Corporation (NASDAQ: MSFT) that could deliver up to 17% returns in the next 3-6 months.

Microsoft Corporation is an American multinational technology corporation that produces computer software, consumer electronics, personal computers, and related services. It develops, licenses, and supports software, services, devices, and solutions worldwide.

Analyst Ratings

According to TipRanks, 26 analysts are offering 12-month price targets for MSFT in the last 3 months. All 26 of those analysts rate it a buy, and none have a hold or sell rating. The average price target offered by these analysts is $326.92, which represents a 7.41% change from the last price of $304.36.

Why MSFT is trending?

Microsoft Corporation has delivered nearly 40% gain for investors since the year started – effectively outpacing the performance S&P 500 index. The market capitalization gap between the two Nasdaq tech stocks, Apple Inc. (NASDAQ: AAPL) and MSFT has also been narrowing.

The company’s latest solid quarterly results along with recent news about a change in the price of its Microsoft 365 solution contributed to the positive performance of its stock. MSFT shares also started trading higher after Wedbush maintained an Outperform rating on the stock and raised its price target from $325 to $350.

There are also quite a few tailwinds for the stock, like the acceleration in the rate at which businesses are adopting digital solutions, and other favorable trends like the incorporation of artificial intelligence solutions, the development of the metaverse, and further innovation in the augmented and virtual reality markets. All these are expected to further boost Microsoft’s top and bottom-line results moving forward.

Microsoft had nearly tripled the amount it has been deploying to buy back its shares in the past years, with a total of $27.4 billion spent for this purpose last year alone. This shows the management’s belief that the stock is undervalued at current levels. Microsoft may continue to increase the size of these repurchases if its results continue to improve moving forward.

However, some of the technical indicators seem to be overheated, indicating that the stock may be due for a pullback before the next surge. MSFT is also facing falling interest from hedge fund managers, with hedge funds decreasing holdings by 5.3 million shares last quarter.

With multiple factors in play, here’s how to trade MSFT now.

MSFT Chart

On analysis, the daily chart of MSFT shows that there are multiple bullish indications for the stock.

#1 Stock on An Uptrend: The daily chart shows that the stock is currently on an uptrend, as it has been forming higher highs and higher lows for the past several months.

#2 Moving Average Support and Bounce-back: The stock’s daily chart shows that it has taken support at the 20-day moving average (marked in purple color) multiple times before moving higher. These bounce-backs have been marked as pink color ellipses. The 20-day SMA is a strong support level for the stock.

#3 Flag Pattern Breakouts: The daily chart shows that the stock has historically formed flag patterns and broken out of them before starting the next upmove. These flag patterns are marked in the chart in orange color. Currently, the stock has broken out of another flag pattern. 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).

#4 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) has currently crossed above the MACD signal line (orange color) which is typically considered bullish.

#5 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.

#6 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.

However, there are also bearish signals for the stock.

#7 Stoch-Price Bearish Divergence: The chart shows that there is a bearish divergence between stochastic and price. This is because while the price was making higher highs, stochastic was forming lower highs. This usually indicates the possibility of an upcoming bearish move. The bearish divergence is marked as pink color dotted lines in the chart.

Below is the bullish and bearish play for MSFT.

Recommended Bullish Trade (based on the chart)

Buy Levels: If you want to get in on this trade, you can purchase the shares of MSFT in the following scenarios.

• Buy Level #1: The first buy level for MSFT is when it corrects to the 20-day SMA line and takes support there. This translates to a price of around $290.00.

Important: It may be noted that this level is just a rough estimate, and it would vary based on the price of the stock when it retests the 20-day SMA line.

• Buy Level #2: The second buy level for the stock is if it corrects to the price of $265.00.
• Buy Level #3: Those with a higher risk appetite can purchase half the intended quantity of shares of MSFT above yesterday’s high, which translates to a price of $306.00.

Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.

TP: Our target prices for various buy levels are as follows

• The target prices for Buy Level #1 ($290.00) are $310 and $340 in the next 3 to 6 months.
• The target prices for Buy Level #2 ($265.00) are $290 and $310 in the next 3 to 6 months.
• The target prices for Buy Level #3 ($306.00) are $330 and $340 in the next 3 to 6 months.

SL: To limit risk, place a stop loss at the following levels.

• The stop loss for Buy Level #1 ($290.00) is $282.00.
• The stop loss for Buy Level #2 ($265.00) is $253.00.
• The stop loss for Buy Level #3 ($306.00) is $294.00.

Note that the stop loss is on a closing basis.

Target Upside: Our target potential upside is 7% to 17% in the next 3-6 months.

• Entry at Buy Level #1 ($290.00): For a risk of $8.00, our first target reward is $20.00 and the second target reward is $50.00. This is a nearly 1:3 and 1:6 risk-reward trade.
• Entry at Buy Level #2 ($265.00): For a risk of $12.00, our first target reward is $25.00 and the second target reward is $45.00. This is a nearly 1:2 and 1:4 risk-reward trade.
• Entry at Buy Level #3 ($306.00): For a risk of $12.00, our first target reward is $24.00 and the second target reward is $34.00. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 6x more potential upside than downside.

Risks to Consider: The stock may reverse its overall trend if it breaks down from the various support levels 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.

Recommended Bearish Trade (based on the chart)

In case the stock breaks down from the recent flag pattern, it would point to an upcoming short-term correction. In that case, below are the entry level, stop loss level, and target prices.

Sell Level: You can take short positions on MSFT below the price of around $285.00. This sell level is marked as a red color dotted line in the chart.

Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.

TP: Our target prices are $275 and $265 in the next 3-6 months.

SL: To limit risk, place a stop loss at $290. Note that this stop loss is on a closing basis.

Our target potential downside is 3.5% to 7% in the next 3-6 months.

For a risk of $5.00, our first target reward is $10.00 and the second target reward is $20.00. 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 with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.

Happy Trading!

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