Expert Technical Analysis - Microsoft (MSFT): Screaming Buy

[Post Summary]

And my heart yearned for him.
—Song of Solomon

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Poor Microsoft (NASDAQ:MSFT). Rightly abused for Vista, today she laid an egg.

So, about today's 11% fade ... has the world ended for Mr. Softy? ... or was today's stock price haircut simply a demonstration of how billionaires trim their prey?

Well, let's see what the Relative Strength Index (RSI) and volume are saying about the future trade in Microsoft. Let's also consider Elliott Wave possibilities.

Are you ready?




A picture's worth a thousand words, they say. But before I add my two-cents, let me just note that, although technical conditions appear quite positive, there's no reason to rush into shares of Microsoft. Let it establish its base between today's levels and $20.

Relative Strength Analysis:
Classic! Microsoft's decline since late-2007 demonstrates the sort of improving underlying strength you want to see before establishing a long position. Sure, the persistence with which MSFT RSI has remained on the sell-side (below 50) might appear a concern. However, Microsoft's improving relative strength — despite its stock price persistently declining — reveals a growing balance between buy-side and sell-side interests. If you want to get long any stock, having an improving buy-side interest on your side is always a good thing. Now, the question is who's selling? Is it strong hands or weak? What say thee volume of shares exchanged? ...

Volume Analysis:
The marked contraction in volume of shares traded during selling peaks over the past year indicates there's no widespread interest in dumping Microsoft. Strong hands are holding and simply letting Microsoft's share price fall. In fact, judging by what appears a pickup in overall activity over the past year, you might conclude Microsoft shares are being accumulated. Probably most revealing is the fact volume of shares never spiked once MSFT fell below "support" in the low 20s. Strong hands quite apparently are holding their ground.

Elliott Wave Analysis:
As you can see, I suspect Microsoft is stuck in a sideways trade, "correcting" its Y2k gassing. Yet at this point in the process MSFT appears technically poised to visit the top side of its range. There's certainly nothing "set in stone" about the $40 target, however. Rather, this simply is a "logical" objective by way of rules put forward in the Elliott Wave Principle.

—Tom Chechatka