Dow component Microsoft Corporation (MSFT) is trading higher by about 2% at Thursday's opening bell after beating profit and revenue estimates for the 14th consecutive quarter. The software giant reported healthy growth in its business, cloud, and personal computing divisions, highlighting the perennial domination of its product line around the world. The somewhat muted reaction isn't surprising because the stock has already risen more than 35% so far in 2019.
The company has been bulletproof so far this year, showing no signs of weakness from trade tensions or growing concerns about an economic slowdown. It has also performed better than the vast majority of the tech universe, including most of the widely held FAANG components. Even so, the stock has gained no ground since July, when the last rally wave stalled above $141, and it is increasingly vulnerable to an intermediate correction.
MSFT Long-Term Chart (1986 – 2019)
A powerful uptrend posted eight stock splits between 1986 and December 1999, when the rally topped out in upper $50s. Government anti-monopoly action directed against the Window operating system soured sentiment at that time, giving way to a long period of underperformance that started with a 60% decline into the fourth quarter of 2000. A hopeful bounce into the upper $30s ended in the summer of 2001, marking the highest high for the next 12 years.
The stock traded within a narrow range between resistance at that level and support in the low $20s through the middle of the decade. An uptick starting in June 2006 gained traction into 2007 but failed to reach the prior high, giving way to a steady decline that broke the 2000 low during the 2008 economic collapse. An 11-year low in the mid-teens finally ended the downtrend in March 2009, ahead of a slow-motion recovery wave that finally mounted the 2001 high in 2014.
A steady uptick reached within a few points of the 1999 high in early 2016, yielding a sideways consolidation, followed by a dramatic breakout after the presidential election. The stock has been on fire since that time, more than doubling in price into September 2019's all-time high at $142.68. Buying pressure has run out of gas in the past six weeks, but the stock continues to hold support in the low $130s.
The monthly stochastics oscillator has held within the overbought zone since the September high, exhibiting excellent relative strength. However, the weekly indicator has now crossed into a sell cycle that predicts weak price action through the fourth quarter. This mixed view may be tested in coming sessions, with the stock lifting above $139 at the opening bell and setting its sights on horizontal range resistance above $141.
MSFT Short-Term Chart (2018 – 2019)
Price action since July 2019 has carved the outline of a symmetrical triangle pattern that favors eventual continuation to the upside. The stock is now trading in the upper half of this range and could reach resistance in a few sessions. While mixed relative strength cycles lower the odds for a breakout, it is best for market players to respect this stock's incredible strength and power to overcome technical obstacles.
The on-balance volume (OBV) accumulation-distribution indicator highlights the holding pattern in place since July 2019. OBV has been drifting lower within a narrow channel since that time, with quiet profit-taking the most notable theme. It makes sense to watch this pattern closely in the coming sessions because a volume breakout that precedes higher prices could signal the next leg of Mr. Softie's powerful bull market run.
The Bottom Line
Microsoft beat third quarter profit and revenue estimates while guiding the fourth quarter to the low end of expectations. The bullish metrics have triggered a buy-the-news reaction that could test critical resistance above $141.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
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