Microsoft price analysis: A correction or end of the rally?

Microsoft price analysis: A correction or end of the rally?
Written by:
Stanko Iliev
24th September, 20:09
  • Shares of Microsoft are now in a correction from its recent highs
  • Even with the COVID-19 pandemic, the business of Microsoft is going very well
  • Microsoft launched Azure Communication Services recently that will compete with Twilio and Amazon

The technology sector is now in a correction from its recent highs but most analysts are not worried about the recent action in technology stocks. Shares of Microsoft (NASDAQ: MSFT) extended its correction from the record highs above $232, registered in the first week of September.

Despite this, there is no reason to panic and as long the price of the Microsoft stock is above $180 this stock is in the “buy” zone.

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Fundamental analysis: The pandemic has only solidified the position of Microsoft further

Microsoft price has been moving in a downtrend the last several weeks but in my opinion, this is a still correction and as long the price of MSFT is above $180 this stock is in the “buy” zone. Even with the COVID-19 pandemic, the business of Microsoft is going very well and the company will have a rise in revenue for the next fiscal year.

Microsoft launched Azure Communication Services recently that will compete with Twilio and Amazon. This service allows developers to add video, voice, chat, and text messaging across applications, websites, and mobile platforms. Microsoft is most certainly a great company and the pandemic has only solidified its position further.

The company increased its revenue for the 2020 fiscal year to $143.01B from $125.84B in 2019 and the growth projects will ensure that the numbers will be moving up in the future. Microsoft has been growing dividends since 2006 and investors can expect a 10% dividend increase.

At its current share price, Microsoft could be a very good short-term investment with solid growth prospects. I said short- term investment because with a $1.52T market capitalization this stock is overvalued in my opinion and represents opportunity only for short-term traders.

Profitability ratios also confirm this, P/E is above 30 which confirms that this stock is expensive. There are some obvious risks when it comes to trading this stock currently but Microsoft’s stability and size will always attracting potential investors and traders.

Technical analysis: Bulls are focused on breaking the resistance level at $220

Data source: tradingview.com

Many traders were looking for a pullback to accumulate more of the Microsoft shares, and that opportunity is here. When we take a look at the chart above ( one year period), we can see that the price of this stock has advanced from $133 to $232 and after that started to fall.

On this chart, I marked important resistance and support levels. The important support levels are $190 and $180, $220 and $230 represent the resistance levels. As long the price is above $180 support this stock is in the “buy” zone and there is no indication of the trend reversal.

If the price falls on this support and if we get a “bullish” confirmation candle it would be a very good entry point for short-term traders who are trading Microsoft stocks with “stop-loss” and “take profit” orders. If the price jumps above $220 (short-term resistance level) that would be a confirmation of the “bullish” trend and open way to $230 or even $250.

Summary

Microsoft price has been moving in a downtrend the last several weeks but in my opinion, this is a still correction phase. Microsoft is most certainly a great company and the pandemic has only solidified its position further. The business of Microsoft is going very well but with a $1.52T market capitalization, this stock is overvalued and represents opportunity only for short-term traders.

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