Here's What Microsoft's Chart Says Heading Into EarningsMicrosoft NASDAQ:MSFT , which will release earnings next week, is beating the S&P 500 SP:SPX year to date -- up 24.4% vs. about 15.7% for the SPX. MSFT has also gained roughly 112% over the past three years, while the S&P 500 has added just 78.9%. What does the company's chart show us ahead of earnings?
Let's check things out:
Microsoft's Fundamental Analysis
Earnings season is about to heat up. With Netflix NASDAQ:NFLX and Tesla NASDAQ:TSLA having reported results this week, the rest of the Mag-7/FAANGs -- Microsoft, Apple (AAPL), Amazon NASDAQ:AMZN , Meta NASDAQ:META , and Alphabet NASDAQ:GOOG NASDAQ:GOOGL -- will release numbers next week.
MSFT is set to release Q3 results after the closing bell on Wednesday, with the Street looking for the software giant to report about $3.66 in GAAP earnings per share. (Analyst estimates range from $3.50 to $3.78.)
A result like that would compare nicely to the year-ago print of $3.30.
Meanwhile, analysts' consensus estimate projects that MSFT will report $75.4 billion in revenue for the period, with individual forecasts ranging from $70.1 billion to $76.6 billion.
The consensus projection would be good enough for almost 15% in year-over-year revenue growth, in line with the pace of sales gains that Microsoft has regularly produced over the past few years.
All in, 26 of the 32 sell-side analysts I know of that cover Microsoft have revised their earnings estimates higher since the quarter began, while just three have lowered their forecasts. (Three have made no changes.)
Beyond just the quarterly numbers, Microsoft CEO Satya Nadella will have a lot to talk about on the earnings call -- from deals Microsoft has signed to power data centers to contracts with chip designers and LLM providers.
There's just a lot going on right now at Microsoft, from expansion of the firm's AI universe to plans to move a majority of its manufacturing out of Mainland China. A lot of what Nadella says about these things could cause a reaction in MSFT's share price.
Microsoft's Technical Analysis
Next, let's check out MSFT's chart going back some four months and running through Tuesday afternoon:
The first thing you'll see is a cup-with-handle pattern with a $531 pivot, slightly above the $524.65 that Microsoft was trading at Friday afternoon. That's a bullish signal as long MSFT can make a run at the pivot.
That's not all I see, though. Check this other four-month chart out:
This view shows a closing-pennant pattern for the stock.
Now, closing pennants historically tell you that a storm is coming, although as an indicator, they're non-directional. They signal that a violent move is on the way, but can't tell you if it's bullish or bearish.
The first chart suggests that such a move will, in fact, be bullish. But these two charts don't work together, so do we trust one or the other? That's the big question.
In the meantime, Microsoft has been using both its 21-day Exponential Moving Average (or "EMA," marked with a green line in the first chart) and the stock's 50-day Simple Moving Average (or "SMA," denoted with a blue line) for guidance lately.
This suggests that swing traders have not exited the trade, while portfolio managers have not reduced exposure. That's typically a positive unless the stock loses those lines after next week's earnings report. If that happens, you might have a crowded move to the door.
Separately, Microsoft's secondary technical indicators don't offer investors much help at this time.
The stock's Relative Strength Index (the gray line at both charts' tops) is almost perfectly neutral.
However, Microsoft's daily Moving Average Convergence Divergence indicator (or "MACD," marked with black and gold lines and blue bars at both charts' bottoms) is leaning bearish.
The histogram of the 9-day EMA (marked with blue bars) is negative and has been for almost two weeks. That's usually a short-term bearish sign.
Similarly, the 12-day EMA (the black line) is running below the 26-day EMA (the gold line). That's also usually bearish technically.
In fact, the only bullish thing I see in this indicator is that both the 12- and 26-day lines are still in positive territory.
An Options Option
Options investors who want to go long on Microsoft while purchasing downside protection might employ a "buy-write" strategy in this scenario.
This involves purchasing the stock, then selling a covered call against that equity position.
This can reduce net basis (cost), but limits the potential profitability of the investor's Microsoft purchase until the call expires. And the shares could get called away if the short call is assigned.
Here's an example of a buy-write on MSFT:
-- Purchase 100 shares of MSFT at or close to the $522 the stock was trading at when I wrote this.
-- Sell (write) one Oct. 31 call with a $532.50 strike price (the above chart's pivot) for about $9.10.
Investors who want some potential downside protection might also buy a put, which can limit losses until the options trade expires. Example:
-- Buy one Oct. 31 $512.50 put for roughly $8.40.
Investors in this example will have reduced their net basis to $521.30, but will have limited their MSFT stake's potential profitability to 2.2% through the options' Oct. 31 expiration. The trade-off is that these investors will have also capped any losses at 1.7% through expiration as well.
(Moomoo Technologies Inc. Markets Commentator Stephen "Sarge" Guilfoyle was long MSFT and TSLA at the time of writing this column.)
This article discusses technical analysis, other approaches, including fundamental analysis, may offer very different views. The examples provided are for illustrative purposes only and are not intended to be reflective of the results you can expect to achieve. Specific security charts used are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. This content is also not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. Moomoo and its affiliates make no representation or warranty as to the article's adequacy, completeness, accuracy or timeliness for any particular purpose of the above content. Furthermore, there is no guarantee that any statements, estimates, price targets, opinions or forecasts provided herein will prove to be correct.
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