Microsoft Stock Close to the Top of Its Range

After rising over 27% in 2014, Microsoft (NASDAQ: MSFT) has been range-bound in 2015. The stock is up just under 3% for the year.
However, that small gain may get erased in the coming weeks, as Microsoft stock is getting close to the top of the range and looks as if it will move lower in the weeks ahead. The range is more prominent on the weekly chart, but let’s look at the daily chart first, as there are several items of note on it.
The first thing we see on the daily chart is the trend line that shows a series of lower highs being set over the last five months. The slope of the line connecting the highs isn’t very steep, but it is downward sloped nevertheless.
The second item that stands out is the fact that the 10-day RSI and the slow stochastics are both in overbought territory, and the slow stochastic lines just made a bearish crossover. Each time these lines have made a bearish crossover in the last nine months, it has been a pretty good short-term bearish signal.

Turning our attention to the weekly chart, we see the range that I mentioned earlier, with the top side of the range up just above the $48 level and the bottom of the range down at the $39.50 area. With the daily oscillators showing Microsoft stock as overbought and the stock near the upper end of its range, it looks like it wants to head back down to the bottom of the range.
It hit or came near the bottom of the range in January, March and August, but it has yet to close a week below its 104-week moving average. If it is going to drop down to the bottom of the range again, it will have to break farther below that trend line than it did in August.

Microsoft is due to release third-quarter earnings on Oct. 22, so you will want to keep an eye on that report. Analysts expect the company to earn $0.58 per share after earning $0.60 per share in the previous quarter.
The sentiment toward Microsoft stock is mixed ahead of the earnings report, with a short interest ratio of 1.99, which is bullishly skewed. The analyst ratings show 19 “buy” ratings, 10 “hold” ratings and five “sell” ratings. These ratings are more of neutral reading, as very few blue chip stocks have five “sell” ratings on them.
I don’t think Microsoft stock moves above the top of the range in the next few weeks. Should the company completely blow out the earnings expectations, the stock could rally and may take out the top end of the range.
However, I see the stock falling over the next two weeks ahead of the earnings report, and if the company misses on earnings, the stock could drop below the range. I would look to make a bearish play at this time and see where the trade stands just before earnings.
If you have a profit ahead of the earnings report, you can take all of the profit or close part of the trade and take your chances on the second part of the trade.

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