Microsoft... Is It A Buy?

12/08/05 01:16:47 PM

by Koos van der Merwe

The Xbox -- a winner this Xmas for Microsoft?

Security: MSFT
Position: Hold

To compete in a very demanding market, Microsoft released its new Xbox to take advantage of Christmas sales without having enough stock on hand to fill all the orders received. Do we figure these unfulfilled orders into a future share price, or will sales be stolen by what is available to fill that Christmas stocking?

FIGURE 1: MICROSOFT, DAILY. MSFT is showing a suggested upside target.

Graphic provided by: AdvancedGET.

Figure 1 is a short-term daily chart of Microsoft (MSFT). It shows how MSFT has risen from a low of $24.27 on October 11 to a high of $28.26 by November 18. It appears to form a consolidation triangle at that point, which suggests an upside target of $31.54. However, the relative strength index (RSI) is suggesting weakness. Because of this, we should look at a weekly chart to get a better idea of what is going on.

FIGURE 2: MICROSOFT, WEEKLY. This MSFT weekly chart shows trend channels.

Graphic provided by: AdvancedGET.

The weekly chart (Figure 2) shows how the share price is testing a long-term resistance line. The 21-10-3 stochastic, my preferred parameters for weekly charts, is also suggesting weakness. The chart also shows that should the price break through the resistance line, then it could rise to test the pivot point target of $30.22, close enough to the triangular target of the daily chart to suggest this target is feasible.

The stochastic that gave a sell at "A" is not very convincing, but it could form a divergence sell, where the price makes a higher high ($30.22) and the stochastic a lower high. Note how the target of $30.22 is close to the upper resistance line drawn at a parallel to the support lines.

So the question is: Would you buy Microsoft today? The charts are suggesting that there is still about $2 in the share, and traders could go for that, but investors should rather stay away, at least for the moment.

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.