Why We Were A Little Slower To Take Profits In Microsoft

Microsoft (MSFT) overtook Apple (AAPL) to become the most valuable company in the world with a market cap over $3 trillion. And with the biggest gains coming from the biggest companies, we couldn’t ignore the swing trading opportunity in MSFT stock.

Here’s why we bought it and why we were a little slower to sell it on the way up.


Swing Trading Example: MSFT Stock

After nearly a 25% move from its September bottom, Microsoft put in a near-term peak at the end of November (1). But it didn’t give up much ground after that. Instead it formed a flat base over the next few weeks with a depth of just 6%.

That pause allowed the 50-day moving average line to catch up to Microsoft’s price as it just grazed the line in the brief pullback that started the year (2).

Once Microsoft cleared the near-term resistance, we added it to SwingTrader (3). A slight flaw was a lagging relative strength line. But since the base formed while the market had a strong December, it was forgivable.

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When Microsoft took out its November peak, we locked in one third of the position with a 2.5% gain (4). Normally we continue to take off a third at a time as a stock progresses but we’ve slowed that down in this rally. Given how hard it is to sometimes get that exposure back as stocks get extended, we’ve been letting more and more stocks run.

That was an easy call with Microsoft as it found support at its short-term 5-day moving average line on its climb higher (5).

Locking In Gains Ahead Of Earnings

So why did we eventually sell?

The day Microsoft was due to report earnings, it crossed 410 then started to lose steam (6). The reality is as a general swing trading rule, we don’t hold through earnings. The big moves and binary nature of earnings reactions make them problematic for keeping losses small and taking gains quickly. So the stock was due to come off anyway. The reversal just made the decision easier.

After Microsoft announced earnings, the stock came down below its 5- and 10-day lines as it dropped 2.7% and closed at its lows (7). The beat on earnings didn’t excite investors as much as the weaker-than-expected guidance concerned them. Admittedly, given the recent gains, it wasn’t a difficult hold as a position trade. But as a swing trade, the short-term average line breaches would have most likely just gotten us a worse price.

But the stock isn’t really broken which makes it worth keeping on the radar. It held above its 21-day moving average line and just this week set up to take out its all-time highs (8). Missing out on earnings moves has been a challenge of this rally but we aren’t prevented from taking advantage of another potential move in Microsoft.

More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.


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