Microsoft Declining Towards Its 200-Day Moving Average, Here’s How Trade The Stock

Microsoft
MSFT
set its all-time intraday high of $349.67 on November 22 and it ended last week at $310.20, down 11.3% below the high. The stock broke below its 50-day simple moving average on January 4 and traded as low as $302.38 on Tuesday, January 18. Its 200-day simple moving average is rising at $291.84.

Microsoft is having a tough time so far in 2022. It’s down 7.8% so far this year, but it’s still up 134.1% since its March 23, 2020 low of $132.52.

Microsoft is not cheap. Its p/e ratio is 36.84% and its dividend yield is just 0.8%, according to Macrotrends. The company had beaten earnings-per-share estimates in twenty-two consecutive quarters.

The Daily Chart for Microsoft

The daily chart for Microsoft shows a strong uptrend that began before the beginning of this chart. The rally climbed along the rising 50-day simple moving average.

The rally ended at $349.67 on November 22. This day proved to be a key reversal day. A downside key reversal day occurs when a stock sets a high then closes below the prior day’s low. That’s what happened on November 22. This was a signal to book profits.

Shares of Microsoft tried to hold its 50-day SMA but that ended on January 4. The horizontal line at the top of the chart is the stock’s quarterly risky level at 343.46. The two horizontal lines in the middle of the chart are the semiannual and annual value levels at $287.69 and $274.58. This is where to buy Microsoft on weakness. The 200-day simple moving average is rising at $291.84 and is a more aggressive buy level.

The Weekly Chart for Microsoft

The weekly chart for Microsoft is negative, below its five-week modified moving average at $319.53. The stock is well above its 200-week simple moving average or reversion to the mean at $181.57. The 12x3x3 weekly slow stochastic reading is declining at 44.65.

During the week of November 19, the slow stochastic reading was above 90.00 at 92.48. Slow stochastic reading scale from 00.00 to 100.00 with a reading above 80.00 being overbought and a reading below 20.00 oversold. I view a reading above 90.00 as an inflating parabolic bubble formation. Remember that bubbles always pop.

Trading Strategy: Buy shares of Microsoft on weakness to its semiannual and annual value levels at $287.79 and $274.58, respectively. Reduce holdings on strength to its 50-day simple moving average at $330.34 and its quarterly risky level at $343.46.