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A Look At Microsoft

08/02/18 04:01:30 PM
by Koos van der Merwe

Microsoft shares have been one of the best performing stocks since 2013. What's in store for the future?

Security:   N/A
Position:   Sell

Are Microsoft shares overpriced? The company reported strong fourth quarter earnings for the fiscal year 2018, beating analyst estimates by 5 cents. The stock rose strongly in after hour trading. Charts however are suggesting that the share price could be overpriced, due for a correction. What do the charts suggest?

Figure 1. Monthly chart with Elliott wave count.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a monthly chart with an Elliott wave count suggesting that the share price is in a WAVE 3 and could fall in a WAVE 4 to 85.87 or 72.56. The RSI-14 indicator is at oversold levels, but has not yet suggested a sell. Do note how volume has fallen as the share price rose. A rising price with falling volume does suggest weakness sometime in the future.

Figure 2. Weekly Omnitrader chart.
Graphic provided by: Omnitrader.
The chart in Figure 2 is an Omnitrader weekly chart with a Vote line suggesting that the share has risen strongly with a fresh buy being given on April 9 at $91.08. The buy on the Vote line was triggered by the sys TrailStopVerve3 strategy. The strategy is based on the share price movement around the Verve trailing stop. The RSI indicator on the chart is at overbought levels, but has not yet suggested a sell. Do note that with the recent rise in the week's price, volume strengthened suggesting strength.

Figure 3. Daily Advanced GET chart with Elliott wave count.
Graphic provided by: AdvancedGET.
A daily Advanced GET chart in Figure 3 is suggesting that the share price is topping out in an Elliot 5th wave. On Friday, July 21, the share price reached a high of $108.20 and a low of $106.08, finishing the day at $106.27. Volume was strong. Do note the RSI which is not yet at overbought levels.

Figure 4. Daily Omnitrader chart.
Graphic provided by: Omnitrader.
The chart in Figure 4 is a daily Omnitrader Chart with 5 strategies. The Vote line is still a buy based on the IEOD Breakout Strategy, the JM Variation Strategy and the Vervoort Stop Strategy. The share price is testing the upper Bollinger band suggesting that weakness could occur in the future. Do note how volume has strengthened as the share price rose suggesting further strength ahead.

Buying Microsoft at present levels is risky. One should wait for a correction to occur and then buy the share when the RSI is at oversold levels for a long term hold and then only when the share price is at the lower Bollinger band and a buy signal is given. This could be the WAVE 4 bottom with a WAVE 5 to follow on the monthly chart.

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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