Tuesday, May 31, 2005


I want to take a look at Microsoft's monthly chart and see if I can guess some reasonable price targets for MSFT using divisions of the historical range and price boxes.

I've chosen to work with the divisions of the all time high of 54.81 since the only reasonable historical low in this stock is essentially 0 adjusted for splits. These divisions are displayed as blue lines on the monthly chart. The bull market boxes for MSFT are displayed in red and are 16.40 points high.

From its all time high of 54.81 in December 1999 MSFT dropped to 18.39 in December 2000, very near 1/3 of the all time high at 18.25. My rule in these situations is that the subsequent rally will typically carry to the corresponding 2/3 point which in this case is at 36.54. In the event MSFT managed to advance to a high of 34.79 in June 2001. The final phase of the 2000-2002 bear market in the broad averages then carried MSFT down to 18.93, a second low near the 1/3 division point, in July 2002.

Since that second low MSFT has traded in a narrow range whose highs have been very near 27.41 which is 1/2 the all time high. I am bullish on the broader averages and on the Nasdaq Composite so I expect MSFT to break above this 1/2 point soon. It has been 3 years since the July 2002 low so any such breakout should be followed by an extended upmove.

The next step up from the 2/3 division point which stopped the rally from the 2000 low is the 3/4 point at 41.11. Note also that the 1/2 point of the second box is at 43.00 and this is normally strong resistance. So as my target for MSFT over the next 6-9 months I choose the 41-43 range.

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