Shares of Microsoft (MSFT) - Get Report have been under pressure, falling some 10% ever since the software giant reported fiscal third-quarter earnings results that missed Wall Street's estimates. But charts show that Microsoft stock could be ready for a potential 5% to 8% rebound from current levels. The company is also due to pay its dividend of almost 3%. That's an attractive combination.
Microsoft stock closed Wednesday at $50.81, up 0.59%. The shares have struggled so far in 2016, falling 8.42%, compared with a 0.18% rise in the S&P 500 (SPX) and a 1.76% decline in the iShares North American Tech-Software ETF (IGV) - Get Report -- home to prominent software stocks like Oracle (ORCL) - Get Report and Salesforce.com (CRM) - Get Report .
But the Microsoft chart says a rebound to $55 per share could be imminent. Take a look at the chart below, courtesy of TradingView.
In determining where Microsoft stock is likely to head next, we can take into consideration that the stock has a consensus buy rating and an average analyst 12-month price target of $60. Microsoft stock is priced at 19 times forward earnings estimates, two points higher than the S&P 500 index. Fiscal 2016 estimates call for $2.66 per share.
From a technical perspective, Microsoft stock is now technically broken, trading below its critical 20-day ($51.01), 50-day ($53.10) and 100-day ($52.71) moving averages. At the same time, the 7.16% gap created by the decline following its earnings miss is something to keep an eye on. The stock has support at $49.29, while resistance (marked by the red arrow) is at $53.54, near its 50-day average.
This means that Microsoft stock would only need to fill less than half of the 7.16% gap to deliver 5.3% gains in a short period of time. If that happens, $53 becomes support and $55 per share will be the next target.
The company will report fourth-quarter results in the third week of July, in about two months.
The bet is that Microsoft will recover from its earnings slide to around $55 per share, delivering gains of 8%.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.