Can Microsoft Corporation (NASDAQ:MSFT) Stay on Top?
Tuesday morning brought modest declines to the stock market, falling back from near-record levels as investors tried to get a handle on a wide variety of issues. Fears that the U.S. economy could fall into recession if the Federal Reserve doesn’t intervene seemed to gain momentum, pushing 10-year Treasury bond yields back below the 2% mark. By 11:30 a.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI) was down 40 points to 26,688. The S&P 500(SNPINDEX: ^GSPC) lost 10 points to 2,935, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was down 52 points to 7,954.
In the gap between earnings seasons, major corporate moves take on greater importance, and today,AbbVie (NYSE: ABBV) announced a huge deal to acquire Allergan (NYSE: AGN) that many investors seemed not to like. Meanwhile, Microsoft (NASDAQ: MSFT) has been the darling among tech giants lately, and some wonder if it’ll be able to keep its market capitalization above the $1 trillion mark longer than two of its rivals did.
Under the terms of the merger agreement, AbbVie will pay $120.30 in cash and 0.8660 AbbVie shares for every Allergan share investors own. That amounts to a total of $188.24 per share — far above the $129.57-per-share price at which Allergan’s stock closed Monday afternoon.
It’s easy to understand why AbbVie decided to make such an aggressive move. With its blockbuster drug Humira looking ahead at a downward spiral in sales from patent expirations and greater competition, AbbVie had to take steps to bolster its growth prospects. CEO Richard Gonzalez thinks buying Allergan will do just that, calling the deal “a transformational transaction for both companies [that] achieves unique and complementary strategic objectives.”
Yet skeptics believe that AbbVie could have done better elsewhere . Allergan has faced some difficulties recently in finding growth of its own, and although Botox has done well , setbacks in areas like its CoolSculpting process and its Restasis eye treatment don’t necessarily point to lightning-fast growth.
At their current prices, investors don’t have high confidence that the AbbVie-Allergan deal will go through. Based on today’s reaction in AbbVie’s stock, that might not be such a bad result for the pharma giant.
Microsoft holds onto its sky-high market cap
Meanwhile, shares of Microsoft were down 2% Tuesday morning. That wasn’t enough to take away the tech giant’s $1 trillion-plus market cap , but it reflected some long-term concerns about the company’s prospects for parts of its core business.
Analysts at Jefferies presented a more negative case for Microsoft in light of the stock’s huge run higher so far this year. Jefferies kept an underperform rating on Microsoft, arguing that its valuation risen too far even as it continues to face massive competitive pressures. In particular, although Microsoft’s Azure cloud computing platform has gained momentum, it’s still likely to underperform Amazon.com ‘s Amazon Web Services unit in terms of profit margin. Jefferies did boost its price target on the stock by $10, but that leaves the new figure of $90 per share still roughly a third below its current level.
As the third stock to achieve $1 trillion status, Microsoft is looking to succeed where its rivals have failed. Amazon and Apple were both above that key level for a short time, but they’ve since lost ground and stand well below that mark. Fans of the Redmond-based Windows maker think that a strong mix of loyal customers for office productivity and operating system software should provide a base of support.
Regardless of what happens in the long run, Microsoft has already proven to be a success story. After a decade in the doldrums, the company reinvented itself in a way while taking full advantage of its stranglehold on key products. As long as it remains the go-to place for those needing office productivity software, Microsoft should be able to hang onto its $1 trillion market cap.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 127.44.
The projected upper bound is: 139.20.
The projected lower bound is: 128.16.
The projected closing price is: 133.68.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 8 white candles and 2 black candles for a net of 6 white candles. During the past 50 bars, there have been 30 white candles and 20 black candles for a net of 10 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 59.5541. This is not an overbought or oversold reading. The last signal was a sell 0 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 56.84. This is not a topping or bottoming area. However, the RSI just crossed below 70 from a topping formation. This is a bearish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 0 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 35. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 12 period(s) ago.
Rex Takasugi – TD Profile
MICROSOFT CP closed down -4.350 at 133.430. Volume was 100% below average (consolidating) and Bollinger Bands were 97% wider than normal.
Open High Low Close Volume___
137.250 137.590 132.730 133.430 1,369
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 134.51 127.96 114.02
Volatility: 24 28 34
Volume: 20,671,238 24,044,512 30,753,990
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
MICROSOFT CP is currently 17.0% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume into MSFT.O (mildly bullish). Our trend forecasting oscillators are currently bullish on MSFT.O and have had this outlook for the last 10 periods.