The announcement that Ballmer will retire after 13 years at the helm of the largest software company in the world was seen by investors as positive news with a rise of over 7% on Friday. I think the enthusiasm is overdone. Microsoft has some hard choices ahead of it. The computer industry is going through yet another transitional change which means tighter margins and unknown entities. HP’s latest earnings show just how tough the PC market is at present. As well Microsoft just announced a restructuring of their company which is believed to be massive. All of these will present challenges for the next CEO.
Microsoft Stock Looking For Support
If I look at Microsoft Stock since the start of 2013 you can see that today’s jump in the stock, while certainly exciting, simply moved the stock toward the top of its range, near the $35 valuation. But looking at the stock there is some support at $33 which I am expecting Microsoft Stock to move back to in the next week. At that point the $32 or $31 put strike will be the best to sell. The $32 is possibly a bit less safe to avoid stock assignment at, but the $31 lies just below the second level of support at $31.50 and there is a good chance the $31 would end up not being assigned.
From there, the better support lies at $29 and $28 which is from earlier this year.
Microsoft Stock Three-Year Chart
Looking at the three-year chart I can see why I have done so well with Put Selling. Microsoft Stock has been stuck in a trading pattern for many years which has made Put Selling this stock and the odd stock trade pretty simple. Two support levels immediately show up which are also noticeable in the chart above for 2013. The $31.50 and $29 levels have decent support. Longer term support is still sitting at $27.50. This tells investors that anytime Microsoft stock falls back that low it is time to pick up shares or sell at the money naked puts for superior put premiums. If you go to the trades for 2013 you can see that from January to March the Put Selling was superior with excellent earnings on the puts and a stock trade here and there. This is because looking at the three-year chart when Microsoft Stock fell back below $28.00 it was easy to increase quantities of puts being sold and pick Microsoft stock here and there for short trades.
While a lot of investors don’t think chart patterns or technical indicators are of much value I believe these investors have not traded with them long enough. Microsoft Stock has probably been one of the best stocks in my portfolio for over a decade. Imagine every year earnings double-digit returns by simply being aware of when to sell puts or pick up stock and when to scale back the Put Selling waiting for Microsoft stock to pull back.
Keeping A Stock Watch List
This is why keeping a watch list of stocks is so important. For example yesterday I wrote about ABT Stock which FullyInformed Members can review here. That stock is setting itself up perfectly for my type of trading. Microsoft stock on the other hand had such a huge jump yesterday that you can see that Microsoft Stock is now out of the picture for Put Selling until it pulls back. But this is no problem. I can wait for Microsoft Stock and turn to my watch list and pick other stocks that are ready for Put Selling or the odd stock trade. Patience is key to profiting consistently and keeping my capital safe.
Latest Outlook On Microsoft Stock
By adding in the volume technical indicator we can mark those support levels in Microsoft Stock to assist with investing properly and confidently. Looking at the past 6 month chart below, I have marked periods of above average volumes and the average price points where Microsoft stock has seen significant volume. Larger volume that stays within a tight price range builds up support. The more often that same price is traded the more support it builds. The more often it is tested and that value holds even more support is built.
If I look at Volume and Microsoft Stock for the past 6 months I can see that $29, $31 and $33 have support. This tells me that right now after the big jump on August 23 following the news of Ballmer’s departure as CEO, Microsoft Stock is trading in an area of very little support. Indeed it is trading at the high price of the range it has been in. No point in Put Selling here.
But the chart below also tells me that when the enthusiasm over his departure erodes, this stock will easily drift back to the first line of support around $33.00. At that value it will be worth looking to start Put Selling at the next level of support which is $31.
When $31 is breached, then Put Selling should focus on the next level of support which is $29. An investor can take this one-step further and understand how to roll down and where. For example when the $33 level is reached and I sell puts at $31, I know that if Microsoft Stock keeps falling and reaches $31 and I do not want to be assigned stocks, then it is time to buy back any outstanding $31 naked puts I may have and roll then to $29. To keep the roll down profitable, I have two choices:
A. Roll further out in time to make sure the put premium at least matches my cost to buy to close.
B. Add more put contracts at $29 with the roll down to keep the roll down profitable. This requires more capital to be risked but also means more capital is being risked at a stronger support level.
Stand Back From The Investing Crowd
You can see then that having an understanding of the pattern of a stock and its trading characteristics allows an investor to stand back from the investing crowd and make rational decisions away from the fear or euphoria of the market.
On August 23 2013 for example, when the stock shot up on the news of Ballmer’s departure, I received dozens of emails from investors who busily bought stock at prices that ranged from $34.50 to $35.00 believing the stock will be shooting a lot higher. It may very well do this, but I prefer to have winning trades continually. That means not “gambling” on the trade “working out”.
Microsoft Stock may very well move a lot higher from here, but until I see support levels within the stock that can advise me that there is enough strength at the $34 to $35 level, I would prefer moving to another stock and waiting for clear signals advising me it is time to get back into trading Microsoft Stock again.
Ballmer’s Departure and The Outlook For Microsoft Stock
Overall I do not see a great difference with Ballmer gone. I prefer safely Put Selling against Microsoft Stock and waiting to see what a new CEO can bring to the company. Often new CEOs do not bring with them larger profits and more revenue. It takes time for changes to come into play and to be reflected in stock prices. Often stock prices reflect the negative aspects quicker than positive ones when a new CEO stumbles even slightly. But with the methods I use I never have to trade blindly or with emotion. Instead when I make my trades in Microsoft Stock I know the clear signals I have received and the goal I have in place and a rescue strategy should it be needed. My plan is to never lose even a small portion of my hard-earned capital. I would rather stand aside, let others take the risk and be there to enjoy the profits when the time is prime and risk is limited.
Doubling My Capital Every 4 Years With Microsoft Stock
For FullyInformed Members, you may want to read this article on color coding your way doubling your capital in Microsoft Stock. Microsoft Stock has doubled my capital in use, every 4 years for over a decade. This kind of stock is the type of investment I prefer for my portfolio.
Microsoft Stock Internal Links
Microsoft Stock External Links
Microsoft Stock Investor Relations
Microsoft Stock Financial Statements