Microsoft Stock Price: Technical Analysis
October 29, 2019
Unlike most tech stocks, Microsoft’s stock price has over 30 years of trading action to analyze. With more data to analyze, I tend to lean heavier on Elliott Wave theory to predict Microsoft’s future. stock price because of the many layers of wave patterns that will naturally unfold over time.
This is a guest post provided by Technical Analyst, Knox Ridley
This article will lean exclusively on Technical Analysis as we start from a monthly chart and zoom into a daily chart to reach the conclusion that Microsoft’s stock price may have some upside left in the trend, but a sharp decline is in the near future, followed by a multi-year renewed uptrend.
Multi-Decade Picture of Microsoft’s Stock Price (monthly charts)
The red extensions are based off the length of Wave I, and then placed at the base of Wave II. The extensions are thus measurements of Wave 1 combined with the internal Fibonacci Ratios (outlined on the right of the chart).
Above is the monthly chart on Microsoft’s stock price going back to its IPO. We have a massive 5-wave pattern unfolding that perfectly aligns with Fibonacci ratios. The exact ratios we use on a daily chart are thus present on a monthly chart, and if you follow the ratio lines in red, you can easily see how the price reacts to these specific levels. It’s because of this that I lean on Elliott Wave as an estimation for the overall direction of Microsoft’s stock price, especially when we can analyze so many layers, and especially considering we are on the final leg of a 30 year 5-wave cycle.
The red extensions are based off the red cycle count that started at MICROSOFT’s IPO. The Fibonacci circles are based off the 3rd wave high and the 4th Wave low.
Not only can we use Fibonacci ratios to estimate support and resistance zones, but we can also use the same ratios to gauge the timing of an uptrend. I only use this technique on large trends, but as you can see above, Microsoft’s stock price tends to warp, bend and react to these levels, as well. In some instances, they act as strong resistance and support.
From my estimation, the price is coming to an inflection point between time and price. The price is moving closer to the 400% resistance circle in black, and is currently hovering between the red 350% and 338.2% price levels in red.
I’m expecting Microsoft’s stock price to make a distinct move within the coming weeks as we approach this inflection point. Either the price will turn down in a corrective fashion, or after bouncing around the resistance levels, we should see the price continue to the next level.
2009 Bull Market (weekly chart of stock price)
Each count has its own internal extensions, which match the color of the count. Red indicates the extensions of the large cycle count, blue represents the primary count off the 2009 low, and the orange represents the retrace level of 3rd wave within the primary count.
If we dive deeper into Microsoft’s price action on a weekly chart, we can see the uptrend from the 2009 low until now. Keep in mind, the large cycle uptrend that started from the IPO, which is highlighted in red, is composed of its own 5-wave structure. Since 2009, we have been in the final 5th wave of the red cycle count, and that count is comprised of the 5-wave primary count, which is highlighted in blue, circled numbers.
My best estimation of this primary count has us pushing to the end of a 3rd wave and possibly just now entering the 4th wave correction. Third waves are typically accompanied by peak technical and is present in the MACD, which is another indicator that we may be close to topping. Also, the 3rd wave will typically reach the 161.8% extension. In this case, we have an extremely extended 3rd wave that reached the 223.6% extension as well as the top of the trend line in blue.
I’m expecting the 4th Wave to correct to the target zone I’ve highlighted in the green box eventually, which is between the $120 – $92 price range. Keep in mind, the $92 price range, though may seem extreme, but it is only the 23.6% retrace level.
It’s worth noting the big picture ahead of us, and the inevitable downside we will face. However, it’s also worth noting that this could take months to play out before we hit a final bottom in the 4th wave drawdown. In the mean-time, I believe the daily chart offers some clues to the short-term direction of Microsoft’s stock price.
If we zoom-in further using the daily chart, we are looking at the final push of the 5th Wave of the 2009 uptrend. What’s worth noting is how well Microsoft has held up as the bulk of cloud stocks are experiencing significant drawdowns. That alone is a show of short-term strength, which should be noted.
Furthermore, Microsoft is trading into an upward sloping triangle pattern, which is highlighted in blue. Price has virtually been rangebound, sloping upwards in a narrowing band. Notice how the RSI has been moving in its own triangle pattern. When I see this, it tells me that the RSI is resetting for the next move higher. The internals are coiling, building up strength, while price is staying stable.
Seeing consolidation of both the price and RSI at all-time highs is bullish, in the near term. Today, Microsoft gaped through the upward resistance, making all new highs, which means we will likely see a continuation of the extension to new highs.
However, if we close below the $128.5 support region, I expect the 4th wave correction to be in effect. If we break to the upside, and close above the $146. 50 region, I expect the bull market in Microsoft to resume as we extend further in this 3rd Wave push.
Cloud is priced for perfection, even after a large rotation out of the sector that is still in progress. Microsoft’s earnings and short term technicals show that the price probable will extend further, extending the 3rd wave push of the primary count off the 2009 lows. If you want to play the long side, I would place a stop just under the $128.50 support region, and consider that the time to invest for the long haul is not at current prices.
This market environment is about playing momentum with tight stops. Even though the long-term analysis is showing a pullback in the future, there is still some opportunity to ride the remainder of this bull market with momentum, as Microsoft leads the way.
The big picture is to capture the final 5th Wave push after the 4th Wave correction takes place. When we bottom, Microsoft will be one of my core holdings as we get the final push of this 30-year cycle trend.
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