Microsoft is having an excellent month so far, even after Wednesday's big sell-off spurred by the Federal Reserve's signal that it will likely make fewer reductions in interest rates in 2025. On Thursday, MSFT surrendered its intraday gains, yet is holding on to a 3% gain in December. So, is Microsoft stock a buy in December?
According to IBD Stock Checkup, Mr. Softy has seen steady improvement in the Composite Rating to a much improved 83 in recent days on a scale of 1 to 99. Only a month ago, this rating was flagging in the mid 60s. While one would prefer to see a Composite score of 90 or higher, Microsoft stock ranks 1st in this metric within the desktop software industry group.
Based on recent chart analysis, it is offering several new buy points. Let's discuss them briefly.
First buy point: As noted in this comprehensive initial analysis on Microsoft stock, the megacap tech tested holders' mettle by falling to its 200-day moving average multiple times since July.
Microsoft Stock In December
This chart tool is highly useful for investors who have held shares in this long-term winner a long time. Why?
When a stock takes a break after an impressive run, it tends to dive back to or even below this moving average. The 200-day line shows a stock's average closing price over the past 200 trading days on a rolling basis. That's 10 months of trading.
Institutions like to build winning positions in good stocks on the growth end of the stock market spectrum when they fall to the 200-day. Think of it as large fund managers buying shares at a discount.
Therefore, since Microsoft stock has rallied off its 200-day line, which has climbed to 424.50, it recently became a buy. At one point, MSFT rallied more than 7% above the 200-day moving average. Therefore, from this vantage point, MSFT got slightly extended.
IBD advises short-term traders and investors to avoid chasing a stock when it's risen more than 5% past a key moving average, including the 200-day.
But after Wednesday's big drop, MSFT eased to within 4% of the 200-day line. So, Microsoft stock is within buying range again.
When To Use The 200-Day Line As A Sell Rule
Another Opportunity
Is a second buy point also in play? Let's go to the charts.
As a daily chart shows, Microsoft stock has been building a new base.
The base's left-side high of 468.35 offers an initial buy point. However, within the base, the enterprise software, gaming and cloud computing titan has also cleared two early entry points at 438.50 and 441.85. Why those two prices, specifically? The stock had encountered stiff selling at 441.85 in mid-September and later at 438.50 just six weeks later. Those resistance levels serve as early entry points as well, even as this high-quality growth stock remains within the base.
Thus, the stock is a buy now if you use 441.85 as an aggressive entry. On Friday, MSFT traded near 448, or 1% above this alternate buy point. But in recent days, Mr. Softy fell mildly below the 441.85 early entry.
Therefore, an investor could also wait to see if MSFT can rally powerfully past 441.85 before considering buying shares.
The relatively tame decline in recent days, in fact, has set up a third possible buy point: a handle entry at 456.16.
Handles on good bases, including cup patterns and double bottoms, represent a final exit of uncommitted shareholders. Their shares fall into the hands of strong investors. A good handle shows a mild decline, typically no more than 8% to 12%, in light volume.
Watch to see if Microsoft stock rallies past the top of the handle; that would mark a new buy, but only when the current outlook remains bullish. On Wednesday, IBD downgraded the ideal amount of stock market exposure to 60%-80% of an actively traded portfolio from 80%-100%.
Quick Look At Fundamentals
The 90 Earnings Per Share Rating is very good. Earnings have grown from $3.88 a share in fiscal 2018 to an expected $13.10 in fiscal 2025 ending in June that year.
Wall Street sees the bottom line accelerating in fiscal 2026, rising 15% to $15.12.
The Relative Strength Rating of 59 fell 4 points recently and remains on the weaker side, reflecting a good deal of sideways action over the past 12 months. However, MarketSurge shows a much better 81 Relative Strength score on a 3-month basis.
See the 3- and 6-month RS ratings for any stock in the IBD database by pulling out the the right-hand panel on a MarketSurge stock chart.
Microsoft Stock Today: Final Thoughts
If Microsoft stock pulls back, watch to see if 440-441 serves as an area of buying support. For months, those price levels served as a ceiling of selling resistance.
Also, never forget to keep losses in any newly established position small. That's the golden rule of investing.
With the market in a confirmed uptrend, the chances of making money in growth stocks are strong. Keep an eye on IBD's current outlook as well as the daily Big Picture column for any potential shifts in the outlook for the stock market.
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