Microsoft Corporation Leading The Trend Higher In The Markets: How Much More Can We Expect?
Microsoft Corporation (NASDAQ: MSFT) is the bluest of blue chips in the technology sector. However, unlike many other so-called blue chips, Microsoft has shed the “stodgy and old” label and has joined the sexy, newer technology stocks with a renewed upside vigor. With a company this large, though, how much is too much upside?
What The Bulls Are Seeing…
In Microsoft the bulls see a chart that resembles the hottest up-trending stocks in technical pattern, if not necessarily in percentage gains. The mathematicians out there would say that the Fibonacci projections are for even more upside before this run is over.
Meanwhile, the company still sports an immaculate balance sheet, huge cash flows, eye-popping profit-margins and reasonable valuations (based on the PEG ratio of approximately one based on next year's projected EPS growth).
What The Bears Are Seeing…
The bears in the Microsoft argument point to the company's historic lack of new innovations (since the old days), which then mean that the company's valuations may be a stretch. Its price-to-sales multiple is fairly reasonable at 4.36 (but not cheap) and its price-to-book ratio is a bit expensive at 4.21. If earnings and revenues aren't where they need to be, then a stock with borderline valuations like Microsoft will be sold off –- and that's what the bears believe will be the case.
Technically, there is nothing bearish about Microsoft's chart, except that it is overbought in the short-term. That alone could be enough to keep the bears interested in this situation for a short-term trade.
Microsoft's chart is seemingly just like the broader U.S. equity market's, technically, in that it is sporting a very strong uptrend and it is overbought in the short term. From that perspective alone, the technical crowd out there would have the prospective bulls wait for a better entry point than at current levels.
In terms of fading the Microsoft rally, the technicians would have the sellers stay away from any new entries until at least $50 per share.
Disclosure: At the time of this writing, Tim Thielen had no position in the equities mentioned in this report.
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