Skip to main content

Microsoft (MSFT) - Get Microsoft Corporation Report after the close on Wednesday reported solid third-quarter results, but the stock did not trade to a new high. This could be a problem for the bulls if the weekly chart does not end this week positive.

My call is to be patient and don't chase today's higher open as the stock remains below its all-time intraday high of $142.37 set on Sept. 19.

The stock since mid-year appears to be trading in a range between its semiannual value level at $131.71 and the Sept. 19 all-time high of $142.37. My call is to buy weakness to the semiannual value level or buy at Friday's close if the stock has a positive weekly chart.

To have a positive weekly chart, the stock needs to end the week above its five-week modified moving average at $138.17. Given a positive weekly chart, the upside is to its fourth-quarter risky level at $152.47.

Here's the analysis of the earnings from The underlying theme is that the stock was priced for near perfection. The company beat on both the top and bottom lines as it transforms from an old-line tech company to growth in cloud computing.

The stock is not cheap, according to Macrotrends, as its P/E multiple is 29.14 with a dividend of just 1.33%.

Save 57% during our Halloween Sale. Don't let this market haunt you; join Jim Cramer's Investment Club, Action Alerts PLUS. Click here to sign up!

Microsoft is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells this stock? Learn more now.

Microsoft is one of the leaders of the Dow Jones Industrial Average. The stock closed Wednesday at $137.24, up 35% year to date and in bull-market territory 46% above its Dec. 26 low of $93.96, which was above its annual value level at $92.72.

The Daily Chart for Microsoft

Image placeholder title

Courtesy of Refinitiv XENITH

The daily chart for Microsoft shows the formation of a "golden cross" on March 12 when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. When the stock traded to its Dec. 26 low of $93.96 and closed that day at $100.56, a positive "key reversal" occurred as this close was above its Dec. 24 high of $97.97. The annual value level remains at $92.72 for all of 2019. The close of $133.96 on June 28 was input to my proprietary analytics and the semiannual value level remains at $131.71. The close of $139.03 on Sep. 30 was input to my analytics and the fourth-quarter risky level is $152.47.

The Weekly Chart for Microsoft

Scroll to Continue

TheStreet Recommends

Image placeholder title

Courtesy of Refinitiv XENITH

The weekly chart for Microsoft will be positive at Friday's close if the stock closes above its five-week modified moving average of $138.17. The stock is well above its 200-week simple moving average or "reversion to the mean" at $86.84. The 12x3x3 weekly slow stochastic reading is projected to end the week at 67.95, which is just above the Oct. 18 reading at 67.02. This rise must be sustained to call the weekly chart positive. The warning here is that the stock could have a negative weekly chart if the stock ends the week below $138.17.

Trading Strategy: Buy weakness to the semiannual value levels at $131.71 and reduce holdings on strength to its quarterly risky level at $152.47. Investors betting on a new high should buy the stock at the weekly close if the weekly chart is positive.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.

The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.

The quarterly level changes after the end of each quarter, so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing 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 past 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. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.