technical analysis MSFT

Technical analysis of MSFT

MSFT, the representative CFD based on Microsoft Corp’s shares, has moved down on the whole this week in the context of a general shift of focus away from tech shares. Almost all of the tech sector is down this week as various participants in markets move back to traditional defensive shares, many of which are undervalued, and look ahead to the effects of fresh fiscal stimulus in the USA.

Microsoft’s actual price:earnings ratio for 2020 was about 38, making it among the more overvalued tech shares by this measure. The general upward trend in Microsoft’s earnings per share (EPS) remains, though, with $1.82 for the third quarter of 2020 having been a positive surprise.

Back on the chart, the most obvious resistance is the latest high around $227 which was reached at the very end of last year. Low support is less clear but $210 could be an area of importance given past bounces from there in the fourth quarter of 2020.

Technical indicators on MSFT H4

 

Moving averages give a buy signal, with each of the 50, 100 and 200 SMAs successively above slower lines. However, the price has now moved below both of the first two. The 200 SMA remains in view as a potentially strong support while the possibility is also there for an extended sideways movement around the value area between these three moving averages ahead of the announcement of Q4’s earnings later in the month.

Neither Bollinger Bands (50, 0, 2) nor the slow stochastic (15, 5, 5) suggest saturation, with the latter at about 39 close to neutral. Volume is generally dominated by buyers, which is pretty standard for a CFD on an individual share and so does not give a reliable signal.

Price action and Fibonacci

 

The fairly small gap downward on Tuesday was nearly closed the next day, which might suggest limited demand to push lower. Three crows (in this case four) at the very end of last year probably does not constitute a dependable signal to sell given thin trading in the week between Christmas and new year. More recent price action has been somewhat positive, notably the large up candle from last Thursday’s open, but the 50 SMA from Bands remains in view as a resistance.

None of the areas of weekly Fibonacci retracement are visible here, but the 23.6% zone around $206 (slightly below the bottom of the chart) might be important over the next few weeks. The weekly Fibonacci fan is more important: the attempt to break through 50% failed at the end of December, but so far there has also been no clear drive towards the 61.8%. Ranging movement with overall slow gains between the 50% and 61.8% areas of the weekly fan seems to be favourable in the next few weeks unless there’s a notable surprise from earnings.

Technical analysis of MSFT: summary

 

The next key event for Microsoft’s shares is the company’s earnings report for the fourth quarter of 2020, due after hours on 26 January. The consensus is for an EPS of $1.64 with estimates currently ranging from $1.86 down to $1.57.

Overall the technical picture for MSFT is reasonably positive but does not provide any indication of strong gains to come in the near future. Instead, ranging movement appears to be more likely into next month. This of course depends on estimates for earnings season being broadly accurate and there being no other fundamental surprises.

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