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Like many Dow components, it's been a rough week for Microsoft Corporation (NASDAQ:MSFT - 26.76), which is on pace to end 2.5% lower amid signs of lackluster Windows 8 sales. Going back even further, the blue-chip tech titan has underperformed the broader S&P 500 Index (SPX) by about 7 percentage points during the past three months, but still has plenty of fans on the Street -- which could signal an opportunity for contrarian bears.
Digging deeper into MSFT's technical backdrop, the stock is off roughly 19% since touching a multi-year high of $32.95 in mid-March, thanks to pressure from its 10-week and 20-week trendlines. The former of these moving averages has descended into the $27.50 neighborhood, which has contained MSFT since mid-November. The latter of these trendlines, meanwhile, has moved into the formerly supportive $28-$28.50 region, and could halt any rebound attempts north of $27.50.
As alluded to earlier, MSFT's challenges on the charts have yet to spook the Street. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than six MSFT calls for every put during the past two weeks. In fact, the equity's 10-day call/put volume ratio of 6.01 stands just 1 percentage point shy of a 52-week peak. Or, in simpler terms, option buyers have initiated bullish bets over bearish at a near annual-high clip.
Elsewhere, the analyst club has adopted the same optimistic attitude. Currently, 20 out of 30 brokerage firms maintain "buy" or "strong buy" endorsements, with not a single "sell" or worse suggestion in sight. Similarly, the consensus 12-month price target among analysts stands at $34.44 -- implying expected upside of 28.7% to MSFT's current price, and in territory the stock hasn't explored in nearly five years.
Meanwhile, short interest depleted by 15.7% during the past month, and now accounts for a meager 1.2% of MSFT's total available float. In other words, there's little in the way of sideline cash to fuel a notable rebound.
Should MSFT extend its recent pattern of lower lows -- or report disappointing sales for Windows-based devices -- an unwinding of optimism in the options pits, or a wave of downgrades and/or price-target cuts, could exacerbate selling pressure on the Dow component.
Investors anticipating more downside for MSFT should consider buying the stock's in-the-money April 33 puts, which were last asked at $6.55.