Microsoft Corporation ( NASDAQ: MSFT) seems to be getting ready for a price bump in the short-term as per the latest charts. The company is an American multinational technology corporation that produces computer software, consumer electronics, personal computers, and related services.
The stock was also a part of our recent watchlist for breakout stocks.
Bullish Move – Chart Indications
#1 Downtrend Channel Breakout: As you can see from the daily chart, the stock has been trading within a downtrend channel for the past several months. This is marked in purple color. The stock had typically taken support at the bottom of the channel before bouncing back. The stock has currently broken out of the downtrend channel, indicating possible bullishness.
#2 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#3 Price Above MA: The stock is trading above its 50-day SMA, indicating that bulls are gaining control.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line is currently above the (-DI) line and the ADX line is starting to move higher from below the +DI and -DI lines.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#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 on the chart in pink color. 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). Currently, the stock has broken out of the flag pattern, indicating possible bullishness. The stock is also trading above its 200-week SMA, indicating that the bulls are presently in control.
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart as well, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
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 $293.
TP: Our target prices are $305 and $318 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $285. Note that the stop loss is on a closing basis.
Our target potential upside is 4% to 9% in the next 3-6 months.
For a risk of $8.00, our first target reward is $12.00 and the second target reward is $25.00. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the downtrend channel breakout level 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.
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