Wednesday, January 4, 2012

Microsoft chart beauty!

Do you own MSFT and are getting fed up and thinking of selling? Do you think they are undervalued and wonder why the stock is not moving up? Did you inherit some stock and wonder whether to sell it or not? Well, it looks like MSFT is near an important inflection point, where the price could see some significant movement, hopefully to the upside. The price action the last two days is encouraging.

Part of my trading is based on technical analysis, a fancy term for analyzing stock price movement. I find it very useful for timing my entries into stocks, and setting an 'uncle' point to get out of the stock if I am wrong and the price is going down after I buy. I get nervous when I am underwater in a stock, and it helps to have a set sell point, it tells me I have planned out my trade and understand exactly how much I can lose.

The price of MSFT as drawn on a chart is setting up a triangle pattern. The price action is showing us that the people who want to sell the stock and the people who want to buy the stock are reaching a stalemate, a point where there are very equal amounts of both, and the tight action of the price is an indication of this. Typically, once one side exhausts itself, the price can move swiftly in one direction, offering a place to get into a trade, and showing some places where one could sell depending on ones tolerance to be underwater in price. You might get lucky and it may never look back, it does happen. If it happened all the time, we would all be rich, so there is no guarantee. Lets looks at the chart to see what I am talking about, then look at example of another stock that went through a similar price set up. You can click on the images to make them larger.

I went through charts of INTC, ORCL, AAPL, all have similar instances of what is happening with MSFT now. IBM I thought the best past example (all of the 1 minute I poked around, I am sure there are better comparisons).

There are lots of other things to talk of here. Where to buy? Break of the line? Over 28? Over 30? The stock may bump up against this line and fail. It may break up to 28 or so and fail. It may even break over 30 and then fail. Where to sell if you do buy? If it goes below the downtrend line again? Below the 200MA? Lots of choices to plan ones trade.

Also, what will happen with the trading volume once it breaks up and out? Will the next earnings quarter for MSFT provide a surprise upside and it will gap up overnight 3 points, or just the opposite, forcing us to wait longer for this pattern to trigger. What will the general market be doing? MSFT likely cannot go it alone and will need some support, at least from similar stocks. It may need another year or more before it breaks this downtrend line, but I am most certain it will at some point, and it may be about to happen. My guess is that things will get a bit agitated with MSFT, but it is a behemoth, a cruise ship of a stock where hedge funds, countries, high frequency algos, and traders in charge of large amounts of money all battle it out. Not my kind of trade, but I find the chart beautiful in its way and will follow its fate and maybe even buy a small amount just to be in. This stock has been dormant a long time. Will it die or rise from the doldrums here? Time will tell.

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