A trading plan on Microsoft
On its earnings report today, Microsoft reported better-than-expected earnings and guidance, but issued first-quarter revenue guidance slightly below the Wall Street consensus. The poor revenue guidance was partly, but not completely, offset by slightly better-than expected guidance for first-quarter operating costs. Overall, the magnitude of the earnings beat was much greater than the magnitude of the guidance cut, and my valuation metrics on Microsoft improved today: PEG dropped from 9+ to about 8.76.
Microsoft is still certainly overvalued, however, along with the rest of the FAANG+ stocks. It's about 30-40% above the top end of its traditional range in terms of forward P/E and P/S. For a long-term buy-and-hold play, I would want to see Microsoft drop all the way to my second volume support before I'd want to buy.
In the short term, Microsoft sentiment still looks pretty good. Options traders are net bullish in their positioning, and the Starmine Equity Summary Score for MSFT is 9.9. ESG has mattered a lot lately, and Microsoft earns one of the best ESG ratings I've seen. Thus I think we'll probably see a bounce from 203 either tomorrow or, more likely, Monday or Tuesday next week. A swing trade over the weekend might be a winner as the market holds out hope for vaccine and stimulus news.
In macroeconomic terms, we saw the "recovery" story start to change today. Initial jobless claims turned upward for the first time in 16 weeks. Lots of other indicators I watch are also starting to look a little more negative. Thus, we may be headed into a period of renewed market weakness until the South and Midwest successfully flatten their coronavirus curves and resume reopening their economies. I highly doubt we'll drop all the way to that lower volume support at $135 unless the Moderna, Pfizer, and Astrazeneca vaccines all fail in clinical trials, but a dip to the upper support around $183.50 in August or September after stimulus news fades may not be out of the question, and from there it'd be worth swinging for a bounce. I will target a small entry at $183.50 and a 3x larger entry for $135, contingent on macroeconomic news.
Microsoft is still certainly overvalued, however, along with the rest of the FAANG+ stocks. It's about 30-40% above the top end of its traditional range in terms of forward P/E and P/S. For a long-term buy-and-hold play, I would want to see Microsoft drop all the way to my second volume support before I'd want to buy.
In the short term, Microsoft sentiment still looks pretty good. Options traders are net bullish in their positioning, and the Starmine Equity Summary Score for MSFT is 9.9. ESG has mattered a lot lately, and Microsoft earns one of the best ESG ratings I've seen. Thus I think we'll probably see a bounce from 203 either tomorrow or, more likely, Monday or Tuesday next week. A swing trade over the weekend might be a winner as the market holds out hope for vaccine and stimulus news.
In macroeconomic terms, we saw the "recovery" story start to change today. Initial jobless claims turned upward for the first time in 16 weeks. Lots of other indicators I watch are also starting to look a little more negative. Thus, we may be headed into a period of renewed market weakness until the South and Midwest successfully flatten their coronavirus curves and resume reopening their economies. I highly doubt we'll drop all the way to that lower volume support at $135 unless the Moderna, Pfizer, and Astrazeneca vaccines all fail in clinical trials, but a dip to the upper support around $183.50 in August or September after stimulus news fades may not be out of the question, and from there it'd be worth swinging for a bounce. I will target a small entry at $183.50 and a 3x larger entry for $135, contingent on macroeconomic news.
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