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Microsoft Headed For A 30% Crash?

Microsoft reached an all-time high of 59.97 dollars a share in 1999. Now, seventeen years later, the stock is approaching those highs once again. What does this mean for the regular investor? Is it good or bad? Does it mean the stock is strong and worth buying or it is too risky to go long on Microsoft near record levels?

The last time we wrote about Microsoft stock was just over three weeks ago – on July 5th – in an article, called “Microsoft Gaining Traction Again”. We were bullish. The reason for this, as always, was the Elliott Wave Principle, applied on the weekly chart of the stock. The chart in question is given below.
microsoft 5.7.16
As visible, we thought wave (4) of Microsoft’s five-wave impulse was over at 48.01, so we were expecting wave (5) to take prices above the previous top of wave (3) at 56.82. The logic behind our bullish outlook was that trends move in five-wave sequences and the fifth wave up was still missing. As the next chart shows, that was more than enough.
microsoft 26.7.16
The stock continued to the north and reached as high as 57.29 as of yesterday, July 21st. The Wave principle once again helped us take advantage of the upcoming move so it seems reasonable to trust it again. Picking tops is extremely risky. Of course, Microsoft could continue a bit higher. But the most important thing is that, according to this count, the stock is currently trading within the final phase of the uptrend, which began in March 2009. The theory states that every impulse is followed by a correction in the other direction. If we apply this rule to the weekly chart of Microsoft, we see that a significant three-wave retracement could be expected to start as soon as wave (5) is over. If we add the double bearish divergence with the RSI to the equation, we get a pretty grim picture of Microsoft stock’s future prospects. If this is the correct count, breaking the resistance of previous all-time highs might take a lot of time. The bulls seem to need a good rest first. Joining them now does not look like the best decision possible. The support of wave 4 of (3) near 40.00 is a plausible bearish target. This means Microsoft could lose around 30% of its value, before it is worth buying again. Until then, investors would be better off staying away.

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