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Microsoft might be getting institutional attention

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This weekend at the OptionInvestor Expo, I used shares of Microsoft (NASDAQ:MSFT) as an example of how to calculate bullish and bearish price objectives. The stock has had an uncanny ability to achieve one bullish price objective from an early January vertical count, and then achieve a bearish price objective from an early February count. In late March, MSFT now has given a bullish price objective vertical count that indicates a potential bullish price objective of $75. It's interesting and quite often indicative of how institutions buy and manage positions, but if you're following the progress of MSFT, you've seen this. In January (red 1), the column of X's from $44 to $50 gave hint that the stock could achieve the $65 level. That it did do in early February (red 2). Immediately after achieving that level, the stock triggered a sell signal and that vertical count to the downside indicated a bearish price objective of $50. In late March, the stock traded $50, and then immediately reversed to $58 and now has given a bullish price objective of $75. If you think like an institutional trader, you might get the feeling that some positions were established from $44 to $50, and then sold from $65 to $58. Now perhaps, institutions have been back at it again, buying the stock from $51 to $58, with higher prices in mind (perhaps $75). You can see from the supply/demand chart below that there looks to be a steady round of supply above $51 as the stock has rallied here 3 times in the past, but has not been able to break through.

Microsoft Chart - $1 box scale.

The upward green arrows are the X columns used for calculation of the vertical count. The red downward arrow is the column of O's that was used to calculate a bearish price objective. Current supply/demand characteristics show resistance near $52 but support should be firm near $56, especially if institutions do have the $75 price target in mind. A nice strategy for a bullish trader in this stock would be to accumulate 1/2 position between $57 and $61, then round out to a full position on a break above $62. As MSFT goes, so goes the software sector. Traders that get hint that institutions may be accumulating the big gun, might also expect some other stocks with a software theme to begin attracting capital.

Why so much emphasis on MSFT?

MSFT is a MAJOR component of all the major market averages and is a very important stock for traders and investors to monitor. One by one, a smart trader identifies and follows key stocks. These key stocks begin building your foundation of future discoveries and helps you understand what the "buy side" and "sell side" of the MARKET is doing. Shares of MSFT look strong and this could tell us that institutions are now starting to get more aggressive with their accumulation of larger cap technology. I've found in the past the large cap tech is the first to accumulate institutional capital, then the mid and smaller cap stocks begin to move. The recent activity in MSFT tells me that money is finding its way to MSFT and DEMAND is building for the stock.

Jeff Bailey
Senior Market Technician

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