Asset Watch
Tuesday, October 8, 2024
The economic bears went back into hibernation on Oct. 4, after a blowout U.S. nonfarm payrolls report came in more than 100k above the consensus estimate. Wage inflation and the unemployment rate also outperformed, showing the U.S. economy remains on solid footing.
However, while several Big Tech heavyweights have recouped large portions of their ‘flash crash’ losses, Microsoft has been a noticeable laggard. Has the AI hype come and gone, or is this a buying opportunity?
Despite some trepidation from others on Wall Street, BMO Capital Markets analyst Keith Bachman wrote on Oct. 3:
“Based on assumed longer depreciation schedules, we are raising our FY26 gross and operating margin assumptions and not making any changes to our FY25 estimates. We believe that P/E is the most relevant valuation metric for MSFT… [and there are] no changes to our outperform rating and $500 target price.”
As a result, Microsoft may offer a solid combination of growth and value, which is hard to find across most Big Tech stocks.
Since peaking in late June/early July, Microsoft has made lower highs and higher lows in recent months. If you analyse the right side of the chart, you can see that the narrowing price action has created a triangle pattern, which implies a breakout or breakdown is approaching.
Tilting the scale in the bulls’ favour, Microsoft is near three meaningful long-term support levels. The first is the lower triangle trendline where Microsoft ended last week. The second is the 50-week moving average (the blue line), which stands near $408. The third is the horizontal white line near $404, which marks price support from several highs and lows throughout 2024.
Add it all up, and Microsoft could bounce in the $404 to $414 area.
If you feel a position is warranted, it may be wise to scale into Microsoft and reduce your average price. You can accomplish this by dividing your desired position size by three and investing 1/3 at a time as the price declines.
The strategy reduces risk in case one or more of Microsoft’s support levels fails to hold.