Microsoft Corporation (MSFT) beat earnings per share (EPS) estimates when the company reported results after the close on July 22. The stock was above its monthly value level at $205.19 when the results were released. The software giant and component of the Dow Jones Industrial Average opened July 23 above the monthly pivot and then broke below this key level. However, the stock stayed above its quarterly and semiannual pivots at $196.79 and $196.71.
Microsoft stock closed Monday, July 27, at $203.85, up 29.3% year to date and in bull market territory at 53.8% above its March 23 low of $132.52. It is also 5.8% below its all-time high of $216.38 set on July 9. Fundamentally, Microsoft stock is overvalued with a P/E ratio of 35.01 and a dividend yield of 1.01%, according to Macrotrends.
This tech giant offers a wide array of products and services: operating systems for PCs, servers, phones, software in the cloud, video games, and online advertising. Microsoft also owns LinkedIn, which is a big deal because its purchase of the social media platform began an EPS winning streak of 17 consecutive quarters.
The daily chart for Microsoft
Microsoft stock has been above a golden cross since March 15, 2019, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lay ahead. This tracked the stock to its Feb. 11 high of $190.70. From this high, the stock fell by 30.5% to a low of $132.52 set on March 23.
After bottoming out at this low, the stock rebounded by 63% to its all-time intraday high of $216.38 on July 9. At the low, the Microsoft stock held its annual value level at $136.42 between March 16 and March 23.
The stock moved above its 200-day simple moving average on March 25 and above its 50-day simple moving average on April 13. This tracked the stock to its all-time intraday high of $216.38 set on July 9.
Since the high, the stock has stayed above its quarterly and semiannual pivots at $196.79 and $196.71. Microsoft is currently trading below its monthly pivot at $205.19 and its weekly risky level at $214.93.
The weekly chart for Microsoft
The weekly chart for Microsoft is neutral, with the stock above its five-week modified moving average of $198.57. The stock is well above its 200-week simple moving average, or reversion to the mean, at $110.50. The 12 x 3 x 3 weekly slow stochastic reading is projected to end the week falling below the overbought threshold of 80.00 with a reading at 79.26.
Trading strategy: Buy Microsoft stock on weakness to its quarterly and semiannual pivots at $196.79 and $196.71. Reduce holdings on strength to its weekly risky level at $214.93. The monthly pivot at $205.19 should be a magnet.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.