Microsoft Stock Buy Signal Flashes Again

Short-term MSFT options are cheap right now

by Karee Venema

Published on Aug 27, 2019 at 11:28 AM
Updated on Sep 9, 2019 at 1:36 PM

A sharp bounce off its 320-day moving average in late December sent Microsoft Corporation (NASDAQ:MSFT) scaling the charts, with the Dow stock topping out at a record high of $141.67 on July 26. Since then, the shares have pulled back to familiar support at a key trendline, and history suggests MSFT stock could be headed back into uncharted territory.

Specifically, the shares are now within one standard deviation of their 80-day moving average after a lengthy stretch above it -- defined as MSFT being north of the trendline 60% of the time in the past two months, and in eight of the last 10 trading days. According to Schaeffer's Senior Quantitative Analyst Rocky White, following the 12 other times this signal has flashed in the past three years, the stock was up 6.2%, on average, one month out, with 91% of the returns positive.

Based on the security's current perch at $136.32, another move of this magnitude would put MSFT stock near $145. The shares are already up 34% year-to-date -- second best on the Dow -- with Microsoft's $1 trillion market-cap level reinforcing support from the 80-day moving average.

MSFT options traders are certainly positioned for more upside. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 3.03 ranks in the 97th annual percentile, meaning calls have been bought to open over puts at an accelerated clip.

Elsewhere, 87% of analysts say the software giant is a "strong buy." Plus, less than 1% of Microsoft's float is sold short.

Those wanting to bet on another MSFT bounce from its 80-day trendline may want to consider an options buying strategy. The stock's Schaeffer's Volatility Index (SVI) of 26% registers in the 29th annual percentile, meaning short-term options are pricing in relatively low volatility expectations at the moment.

msft stock daily price chart aug 27


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