Buying Microsoft At Its Annual Value Level Is Like Catching A Falling Knife

Microsoft (MSFT) tested its annual value level at $274.58 in reaction to earnings reported after the closing bell on Tuesday, January 25. The evening low was $273.79. In trading today, January 26, the stock opened below its 200-day simple moving average at $292.94 then traded as high as $294.99. It’s back below this average and its annual value level at $274.58 has not yet been tested.

The stock is not cheap. According to Macrotrends; its p/e ratio is elevated at 35.20% and its dividend yield is just 0.84%.

The Daily Chart for Microsoft

Shares of Microsoft has been above a golden cross since March 15, 2019. This cross is not shown on the chart, but this is when the 50-day simple moving average moves above the 200-day simple moving average.

The stock tracked its 50-day SMA higher until the all-time intraday high was set at $349.67 on November 22. You can see that this date was a key reversal as its close that day at $339.83 was below the November 19 low of $342.20. These two dates were a Friday and a Monday.

The downside gained momentum when Microsoft fell below its 50-day SMA on January 3. The stock gapped below its semiannual pivot at $328.08 on January 5.

From top to bottom the horizontal lines are the quarterly risky level at $343.46, the semiannual pivot at $328.08 and the annual value level at $274.58.

Note that Microsoft opened today, January 26, below its 200-day SMA at $292.94.

The Weekly Chart for Microsoft

The weekly chart for Microsoft has been negative since the week of January 7. The stock is below its five-week modified moving average at $311.99. It remains well above its 200-week simple moving average or reversion to the mean at $183.52. The 12x3x3 weekly slow stochastic reading is declining at 33.05. When I wrote about Microsoft on August 10, 2021, this reading was 93.66. The reading above 90.00 put the stock in an inflating parabolic bubble formation. This bubble popped this month.

Trading Strategy: Buy Microsoft on weakness to its annual value level at $274.58, which was doable in after-hours trading on January 25. Reduce holdings on strength to its semiannual risky level at $328.08.