A 'Base' Plan for Microsoft, CrowdStrike
Let's check two of my favorite stocks as they start to consolidate.
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Two of my long-time faves that had broken out earlier in June have started to base. Consolidation can be a good thing. The pause that refreshes. It can also mean that the asset at hand has reached a point where a loss in momentum has handed the bears the advantage. There are a number of names I could be referring to, but right now, I speak of Microsoft MSFT and CrowdStrike CRWD. Why are these two so important to me?
Well, these two stocks just happen to be the two most heavily weighted stocks in my most actively traded portfolio. So, here, it's not just about dollars and cents banked, but about risk management, and ego. Not so much my ego as a stock picker, but my ego as a chameleon. This could be about my ability to identify, adapt, overcome, and carry on. Nothing in life says more about an individual's EQ (forget IQ, we're all smart here) than the ability to adjust to changing environments while remaining flexible, as paths toward both desirable and negative outcomes remain fluid.
We are not getting out of these names. We are merely adjusting our plans of action. Remember, mapping out one's intentions and being disciplined in the execution of said intentions, removes all emotion from decision making. Being disciplined does not eliminate mistakes in decision making. It does eliminate accidents. Removing emotion does, in my opinion ... greatly decrease the likelihood of making impactful mistakes.
Fine Tuning Microsoft
About five weeks ago, I wrote to you concerning Microsoft. Readers may recall that at that time, I defended MSFT after it appeared that a number of funds (in the 13F quarterly reports) had taken profits. I reminded readers that first quarter earnings had been solid and that the company still showed strong growth exactly where strong growth counts the mosh. In the Intelligent Cloud, in Azure. Azure for that quarter grew faster than either Amazon's AMZN web services (AWS) or Alphabet's GOOGL Google Cloud. The chart I showed you then looked like this:
Readers will see that at that time a flat base had formed between the highs of late March / early April. At that time, I identified a pivot of $30 and increased my target price to $516. Add five weeks and this is what we see....
Readers will see that since I wrote that piece, MSFT had broken out and tacked on almost 7%. Relative Strength is considerably stronger, as the daily moving average convergence/divergence is far more bullish in its posture. Is it time to come up with a new target price? Probably not. Perhaps, though, we do need to adjust the rest of our levels.
Microsoft Strategy
Target Price: $516 (reiteration)
Pivot: Top of base $433 (up from $430).
Add: down to the 50-day SMA ($419).
Panic: on a loss of the 200-day SMA ($385)
CrowdStrike's Risky Patterns
I last wrote to you on CrowdStrike in response to its June 4 earnings release. I had already told readers that in my opinion CrowdStrike had long since taken the title of cybersecurity "best in class" away from Palo Alto Networks PANW, and I of course, boasted on that claim again that day. CrowdStrike posted top and bottom-line beats, unadjusted profitability after a ton of stock-based compensation, and then guided the current quarter above Wall Street's further expectations, maintaining an annual rate of sales growth that tops 30%. The balance sheet, as I mentioned that day, is fortress-like in nature. That day, I showed you what I saw as the development of a cup-with-handle pattern bearing a pivot of $359. Here is that chart:
At that time, less than three weeks ago, CRWD still had an indecisive reading for its Relative Strength Index and a bearishly postured daily MACD. I actually sold some to be on the safe side. The rally that ensued made CRWD my most heavily weighted position, despite that sale. The stock is now, however, starting to show some weakness after a very nice pop. Let's explore ...
Even off of its recent highs, CRWD stands up 17.7% from when I penned that piece. Relative Strength is still strong, but maybe starting to roll over. In addition, the daily MACD is extended, but that 12-day exponential moving average is looking like the head of a cobra preparing to strike. That would be bearish, just an FYI. That unfilled gap from June 10 would need a $649 tick to fill. The stock has clearly rounded and is in danger of forming an island topping.
CrowdStrike Plan
Target Price: $431 (reiteration)
Pivot: $359 (has not changed)
Partial Panic: On downside break of pivot.
Partial Re-entry: On filling of mentioned gap ($349)
Add: On approach of 50-day SMA (currently $330)
At the time of publication, Guilfoyle was long MSFT, CRWD, AMZN.
