Microsoft Revisited

07/22/04 02:57:32 PM

by Koos van der Merwe

On June 24th, I submitted an article, Microsoft: Is It Worth Buying? I decided to revisit the stock price to see if it is still worth buying.

Security: MSFT
Position: Buy

The article was based on the speculation that Microsoft could possibly offer its shareholders a dividend, or start a share buy back. I felt that either way, it looked as though management's intention was to move the share price from the doldrums. I concluded by suggesting that 'I would wait for a break above 28.69 before buying'.

On July 21, 2004, Microsoft Corp. announced that it will give $75 billion to investors by way of a stock buyback, a doubling of the dividend, and a special payout. What are the charts saying now?

Microsoft... now a utility?

Graphic provided by: AdvancedGET.

The chart is the daily chart of Microsoft, and clearly shows the cup and handle formation with the share price breaking above the resistance level of $28.85 of the handle with a gap. The target as determined by the cup and handle formation is $30.80. Microsoft reached a high of $29.92 before falling back to $28.90, trading around this level on the day after their announcement. The share price should fall back to fill the gap, which means that it could test the $28.48 level before moving higher. That Microsoft stated that the plan to provide $75-billion of total value to shareholders over the next four years could be the reason for the share pullback after the initial enthusiasm.

Is the share worth a buy at present levels? The Stochastic is suggesting that you could wait for a possible fall below the 20 level. The ADX indicator has turned positive, and the DMI has given a buy signal.

To conclude then, I would be a buyer of Microsoft on any pullback and hold it for the very long term. With the continued profitability of the company a certainty, and a comfortable dividend payout yearly, the stock could almost be reclassified as a utility.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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CUP WITH HANDLE

Microsoft Revisited

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