Absolute Top

Getting a handle on Microsoft

Since reaching its all time high, in 1999, MSFT would have been quite a bumpy ride to try and trade. But more recently it’s come to my attention as a potential for a good trend.

From March 2014 price had been sticking around the 40RN, eventually breaking out (with some conviction) in July.

It was a pretty big move up (about $4 or 10% of the stocks price) so the following pullback did not come as a total surprise. Looking at the daily chart you can clearly see that this pullback ended with a lovely reversal candle. Not only was the doji clear of it’s surrounding bars but it’s extreme wick beautifully tested both previous resistance and the 50 moving average.

But, as price approached the July high, there was a further reminder that this stock was not quite ready to make it’s move. There was another, but much smaller, pullback which eventually formed a cup and handle formation. This was confirmed with the breakout bar of 5th September.

With this formation it is quite acceptable to take the trade on the break of the cup and handle extreme. However, as this stock has been on the naughty list for so long I decided to wait for the next set-up to occur. This took place on 11th September (although the trade has not been triggered yet).

Other factors to support the trade are that the breakouts have been supported by higher volume. In addition the higher, weekly time frame gives every indication that this trend will continue as Microsoft looks to be in the middle of an Elliott Wave 3 (which began in September last year). Finally, earnings are not due until 23 October.

Two factors against the trade are that the US indices are a little sticky of late (although still bullish), and there may be possible resistance at the figure 50. But, if triggered, my trade will have broken even by then and the all time high of $60 is probably more of an issue.


Trend trade with tenacity!

Anne Chapman
Anne Chapman

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