Microsoft (MSFT) - Get Report has been a longtime benchmark stock, given its membership in all three major equity averages, the Dow Jones Industrial AverageI:DJI , the S&P 500 I:GSPC and the Nasdaq CompositeI:IXIC .
Microsoft has a gain of 3.1% year to date and is up 19.1% since setting its June 27 post-Brexit vote low of $48.04. The stock is thus shy of bull market territory, which calls for a gain of at least 20%. The 2016 high of $58.70, set on Aug. 26, is just below its tech bubble peak of $59.97, set in December 1999.
The software industry as measured by the iShares North American Tech Software ETF (IGV) - Get Report is up by 6.8% year to date. The exchange-traded fund set its multiyear high on Oct. 10. This ETF of 58 components is in bull market territory, up 35% since Feb. 8. Microsoft is the second-largest component of this software ETF.
The daily chart for Microsoft shows the stock above a "golden cross" since Aug, 10. This bullish chart formation occurs when the 50-day simple moving average crosses above the 200-day simple moving average and signals that higher prices lie ahead.
The weekly chart shows that Microsoft ended last week positive but overbought, which increases the odds that the company will have a positive reaction to earnings. However, today's chart shows negative divergences before earnings.
Analysts expect Microsoft to earn 68 cents a share when it reports earnings after the closing bell on Oct. 20. One initiative investors should note is the use of cloud computing and Windows devices to help in law enforcement and other government activities.
Here's the daily chart for Microsoft.
Courtesy of MetaStock Xenith
Microsoft closed Monday at $57.22, up 3.1% year to date, after setting a multiyear intraday high of $58.70 on Aug. 26. The stock is shy of bull market territory -- 19.1% above its June 27 low of $48.04.
Microsoft confirmed a "golden cross" on Aug. 10, when the stock closed at $58.02. So far this normally bullish technical signal has not panned out, as the stock peaked at $58.70 on Aug. 26. The recent low end of a trading range was $55.61 set on Sept. 12.
Note three significant price gaps. The earnings report released after the closing bell on Jan. 28 was followed by a price gap higher on Jan. 29 on a positive reaction to earnings. This price gap was more than filled by Feb. 3. A price gap lower on April 22 was fueled by a negative reaction to earnings released after the closing bell on April 21. This gap was more than filled by a price gap higher on July 20 on a positive reaction to earnings on July 19.
This earnings volatility is a navigation nightmare.
The stock is below its 50-day simple moving average of $57.54, with the 200-day simple moving average of $53.84.
Here's the weekly chart for Microsoft.
Courtesy of MetaStock Xenith
The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.
The weekly chart for Microsoft ended last week positive but overbought. Observe that this chart will be negative given a close on Friday below its key weekly moving average of $57.17. The stock is well above its 200-week simple moving average of $43.35, which was last tested during the week of Jan. 18, 2013, when the average was $27.19, as the "reversion to the mean."
The weekly momentum reading is projected to slip to 76.08 this week, down from 81.60 on Oct. 14, falling below the overbought threshold of 80.00.
Investors looking to buy Microsoft should consider doing so on weakness to $54.22 and $53.69, which are key levels on technical charts until the end of 2016 and until the end of October, respectively.
Investors looking to reduce holdings should consider selling strength to $60.15, which is a key level on technical charts until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.