Could Trendline Support Send These Blue Chips Booming?

Microsoft Corporation (MSFT), Nike Inc (NKE), and Visa Inc (V) could all rally off of supportive moving averages

Jan 21, 2016 at 11:15 AM
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As most everyone knows, the broader market has been pulling back, and yesterday we looked at three stocks that history suggests could rally hard off a bottom. But these are hardly the only stocks with upside potential. Amid the sell-off, several Dow components have been testing key trendlines from which they could bounce, and below, we'll take a look at three: Microsoft Corporation (NASDAQ:MSFT), Nike Inc (NYSE:NKE), and Visa Inc (NYSE:V).

At its session low yesterday, MSFT was trading at $49.10, just above its 160-day moving average. This has proven a bullish signal over the past three years, with positive five-day returns in all six prior instances and an average gain of 2.9%. Going out to 21 days, the stock has been higher two-thirds of the time, up 3.5% on average.

MSFT is already off to a good start this time around, up 0.7% this morning at $51.15. This also puts the stock above the round $50 level, and its pre-bull gap highs from late October -- which could potentially serve as double-barreled technical support. However, a possible speed bump lies just overhead in the $52-$54 zone.

Short-term option traders have certainly taken a glass-half-full approach toward Microsoft Corporation, seemingly undaunted by its recent troubles. The stock's Schaeffer's put/call open interest ratio (SOIR) rests at an annual low of 0.45, meaning speculators haven't been as call-skewed at any point in the past 12 months. Looking ahead, MSFT is slated to report earnings after the close on Thursday, Jan. 28.

Turning our attention to NKE, the shares have recently tested support at their 200-day moving average. Over the past three years, five similar signals have yielded positive returns four times on both a one-week and 21-day time frame, with typical corresponding gains of 3.2% and 5.8%.

Things are looking upbeat today, as NKE has already surged 3.2% at $60.92 -- helping to lead the Dow higher, despite a price-target cut to $74 from $75.50 at Goldman Sachs. More generally, though, the brokerage bunch is upbeat, with 20 of 24 analysts handing out "buy" or better recommendations, and not a single "sell" opinion on the books.

Nike Inc could catch a tailwind, too, if bearish option traders decide to head for the exits. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.16 puts for each call -- a ratio that ranks in the 84th percentile of its annual range.

Finally, V flirted with its 320-day move average yesterday, which could be a sign of good things to come. The last two times this signal flashed, the stock went on to positive 21-day returns, with a typical gain of 9.5%. Today, the shares are staring at a solid 1.4% pop to trade at $71.65.

While V attempts to establish a foothold -- and the company prepares to release earnings next Thursday morning -- option traders have been betting bearishly. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.70 registers near the top quartile of its annual range. From a contrarian perspective, an unwinding of these positions could spell additional upside for Visa Inc.
 

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