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Apr 29 2011  / Microsoft Stock Symbol - MSFT
Microsoft Third Quarter Earnings

Latest Microsoft Stock Report - Part 2

 

 Continued from page 1....

To better understand how I will pick my strike points and how I will look at the future for Microsoft stock, let's look at this Microsoft stock history chart (below) for the past 5 years. Like so many stocks, Microsoft stock made new all time highs in the fall and winter of 2007 at one point reaching $37.50. Then like all the stocks, it was hammered in the bear market falling to a low on March 6 2009 of $14.87 a loss of $22.63 or 60%. Quite a fall indeed. Since then Microsoft stock climbed back reaching a high of $31.58 on April 23 2010. Since then the Microsoft stock value has failed to recover those highs. So what does this chart tell us? Well for one thing, not to buy Microsoft stock above $26.50 until the Microsoft stock value rises and sets a new higher range, possibly 28 to 30 or even 30 to 32. Looking at the chart below and being aware of the earnings chart from Part 1, I know that even better earnings is going to have a hard time driving this stock higher. However I also know that a continuation of good earnings should keep the stock from falling much below support. (More about support in Microsoft stock below)

 

To perhaps better understand what an investor might expect in the future, it is good to again return to the Microsoft Stock History chart and look back at how the stock performed in the previous bear market. I have left out of the chart below the run up in 2000 when the dot com frenzy was underway. Instead this history chart gives a much more realistic picture of Microsoft. The bear market chopped 40% off the value of Microsoft stock in the 2001 to 2002 bear market.  Again looking at the stock history, It took 64 months for the stock to recover to its previous high and then the next bear market commenced in 2007.

 

 

You can understand the value of reviewing Microsoft stock price history chart. The chart shows a very strong support line at the value around $24. I have marked it in pink. This support line goes back for years and Microsoft stock repeatedly tested this support throughout the 64 months before finally making a new uptrend in 2006. I believe this $24.00 valuation marks pretty solid support for Microsoft. This immediately tells me that Microsoft stock options at $24 should be studied for selling puts and for those who are call buyers, to buy calls. But of particular interest is the length of time to recovery.

 

 

Therefore in the last bear market Microsoft Stock took almost 5 and a half years to recover the previous high. Below is the past 5 years Microsoft stock price history chart again. Remembering that it took 5 and a half years from the last bear market bottom for the stock to recover, this could mean that Microsoft's stock has only been two years into the recovery. Based on this simple strategy, I know there is no need to chase this stock. I also know that should some sold puts get caught in the money such as some of the puts I am presently holding at the $27 strike level, I will have lots of time to work these short puts lower and eventually out of the money or take assignment on a much smaller number of contracts than 6 put contracts I am still holding.

 

You can see the typical double top of Microsoft in 2007 and again in 2010. I have drawn in the support line at $24.00. Looking at this chart I can see that Microsoft stock market support remains stuck at $24.00. Look at how it has been tested again since it pulled back from $31.58 in Jan 2010. Whenever the stock runs away from support, it inevitably falls back to it, even if it is months later. This is valuable information for me to have as I know what Microsoft stock options to seriously look at, but it also reminds me that I can consider selling longer term puts at the $25, $24 strikes or even lower such as I have done at this time through my current reverse naked puts ladder strategy in place on Microsoft stock.

 

The final chart shows the price of Microsoft stock for the last 12 months. Looking at the chart and taking Microsoft earnings history into account, Microsoft may have a chance to recover to the $28 level from back in Jan of this year, but Microsoft would need a completely different direction for investors to get excited about it again. This is a staid, boring stock. Microsoft's dividend has increased annually for many years. You can tell from all my charts that this stock has really gone nowhere in more than 10 years. Microsoft stock has remained for the most part in a range between $24 on the low and $26 on the high. This makes the Microsoft stock option put strike to sell $25.00. Even if the stock falls below $25.00, I have great confidence that until the support is broken at $24, the stock should recover and place the Microsoft puts I have sold out of money and allow them to expire. The charts also tell me that I can sell the $25 strike on every dip.

 

SUMMARY

This is the type of study I do for every stock before deciding whether to risk my hard earned capital. Doing this type of Microsoft stock analysis and keeping these charts up to date, provide me with valuable history which I can use for future decisions. Basically the past helps me in the present and in the future.

 

Microsoft has been an easy stock to sell puts against and I for one am delighted with the go nowhere attitude of the stock. I do not see this stock breaking from its range. Looking back through history, even better earnings has not been able to change the range on this stock. I have been selling puts on Microsoft for years and earned double digits returns every year. I have enjoyed Microsoft so much that I wrote an article entitled Microsoft - better than gold. I am sure there are lots of other investors using other strategies to benefit from Microsoft's range, but my strategy remains with selling puts.  Return To Part 1

 

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Microsoft Corp  
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View MSFT-2011 Trades
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Microsoft Articles

In The Money Covered Call
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Puts Better Than Gold
Ultimate Utility Stock
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Microsoft Stock Report
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