Shares of the tech giant closed Wednesday at $73.86, up 18.9% year to date and in bull-market territory, 28.9% above its post-election low of $57.28 set on Nov. 14.
Thursday morning the stock continued to hit new highs, as investors bet on its parabolic upward momentum. It's backpedaling now, though. Betting on a positive reaction to earnings is not that easy. Take a look at the weekly chart and key levels, then decide!
Cloud-computing applications will be an important metric for Microsoft when it reports earnings after the closing bell July 20. Analysts expect the tech giant and component of the Dow Jones Industrial Average to earn 71 cents a share.
As we focus on the weekly chart for Microsoft, it's important to note that the stock has been above a "golden cross" since Aug. 10 on its daily chart. This occurs when the 50-day simple moving average rises above the 200-day simple moving average indicating that higher prices lie ahead. This signal tracked the stock from $58.02 on Aug. 10 to the current all-time high of $74.04.
The Weekly Chart for Microsoft
Courtesy of MetaStock Xenith
The weekly chart for Microsoft is positive, with the stock above its five-week modified moving average (in red) at $70.83. The 200-week simple moving average or "reversion to the mean" (in green) is $50.08.
The "reversion to the mean" is an investment theory that the price of a stock will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its "reversion to the mean" will eventually decline back to it on weakness. Similarly, a ticker trading below its "reversion to the mean" will eventually rebound to it on strength.
For Microsoft, the 200-week simple moving average was last tested during the week of Jan. 18, 2013, when the average was $27.19.
The 12x3x3 weekly slow stochastic reading is projected to end the week at 73.54, up from 69.22 on July 14.
Trading strategy: Buy weakness to my annual value level of $63.82. Monthly and semiannual pivots are at $71.87 and $71.42, respectively. Wednesday's all-time high of $74.04 was just above quarterly and weekly pivots of $73.54 and $73.91. These are the tight levels that need to hold if you are betting on momentum.
A spike higher in reaction to earnings would put Microsoft in a parabolic formation, where the upside is in uncharted waters.
Microsoft's shares were slightly up to $73.89 early Thursday afternoon.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.