MSFT Stock: Keeping It Simple
Microsoft Corporation (NASDAQ:MSFT) stock is an oldie but a goodie, and nothing speaks more highly about this company than its performance. An easy measure of this performance is that former CEO and co-founder Bill Gates is currently ranked as the richest man in the world, with a current net worth of $90.0 billion. He has maintained his stature on this list because of the riches he has amassed as a holder of Microsoft stock and other key investments.
Microsoft is not the same company it once was, and it has come a long way since it was heavily dependent on its “Windows” platform. It has diversified into many segments, putting its hoard of cash to work by acquiring companies in key segments of the growing economy. These segments have done extremely well and are responsible for the growth that MSFT stock is currently experiencing.
Year-to-date, this investment is up 15.96%, and the trend toward higher prices is relentless, with little to suggest that it will end any time soon. I will now outline this bullish trend and pinpoint key levels of support, which can be used to define risk in this investment.
The following Microsoft stock chart illustrates a bullish advance that began in early 2009.
Chart courtesy of StockCharts.com
Microsoft contains a bullish trend that is built upon the quintessential characteristic that defines all bull markets: a series of higher highs and higher lows. This characteristic is responsible for a trend that began in the lower left corner of the price chart and has traveled to the upper right corner.
This bullish trend is captured by using a simple uptrend line. This uptrend line is created by connecting the significant lows that have occurred over the years. This uptrend line creates a plane that acts as a dividing line that measures the health of this bullish advance. As long as Microsoft is above this uptrend line, I can only assume that this investment remains healthy, meaning that higher prices are likely to continue.
If MSFT stock would ever fall and close below this uptrend line, I would have every reason to believe that the bullish advance that began in early 2009 has finally concluded, and that a larger correction is set to ensue. The price support outlined by the uptrend line currently stands at $51.50, which is 27.58% lower than the price, equating to a substantial amount of risk if I were to assume a position that is based only on this uptrend line.
As a result, the following Microsoft stock chart illustrates the metrics that have been supporting the recent move within the larger bullish trend.
Chart courtesy of StockCharts.com
This MSFT stock chart illustrates the bullish price action that is occurring above the predominant uptrend line. Since July of last year, MSFT shares have been in an accelerated state as Microsoft stock continues to pull away from the uptrend line. This price chart illustrates the two indications that have been supporting this accelerated advance.
The first metric is the 50-day moving average, and this metric is created by averaging the closing price of Microsoft stock over the past 50 days and plotting that value on the price chart. This produces a smooth trend line, depicting the medium-term trend. In July 2016, MSFT stock broke above this moving average, and has remained above it ever since.
Check Out: Microsoft Stock Firmly Set on a Growth Path
As a matter of fact, this moving average has become a significant level of price support. Every time this level was tested from above, investors were eager to step in and support the price from declining any further. The number of times that the 50-day moving average was tested from above reinforces the significance that this metric carries.
The second metric is the uptrend line that is highlighted on the chart above. This uptrend line is similar to the one that was shown on the previous chart, except that this one identifies the bullish trend developing above the larger uptrend line. This uptrend line, like the 50-day moving average, is acting as a dividing line. As long as the stock price is trading above these metrics, I can only assume that the accelerated trend toward higher stock prices is set to continue.
As a result, I would use these metrics to define my level of risk if I were setting to assume a position at current prices. The fact that both metrics are converging around one price only serves to reinforce that this level of support is significant. If the stock price were to break below this level, it would suggest that a larger correction was set to ensue, placing the long-term uptrend line as the next logical objective.
Bottom Line on Microsoft Stock
I am bullish on Microsoft stock because, as long as Microsoft is trading above its long-term uptrend line, I can only assume that this investment is on the right track. Which means that the path of least resistance is geared toward higher MSFT stock prices.