The Canadian Technician

Microsoft Follows Tesla Onto The Arc


Years ago, Microsoft (MSFT) said they were going to start billing for Microsoft Office monthly to smooth out their revenues. I remember hating the concept. Today, everything we get is billed monthly in our email rather than the post office. They come like bullets in the inbox, just another expense in the email gun. Each quarter, Microsoft turns out money as the SaaS rain accumulates into a river of wealth. What might have been held inside the river banks of the Potomac years ago now has the massive change in profit flow requiring river banks the size of the Grand Canyon to handle the deluge.

The PPO, or momentum indicator, has reached the same level of momentum as when the Microsoft stock topped back in 2000, as shown by the blue line. We can see only one time in the last 20 years where the stock momentum exceeded the level, which was when it was coming off the 2009 lows. But the stock had a few quick days of wealth gains through the 1990s as well, so this thrust is only moderate in the company's history!

On a monthly chart, what would be seen as a ramp from $25 looks similar to the recent surge in Tesla (TSLA) on a daily chart. It's impressive to see a logarithmic chart on a monthly setting with the parabolic moonshot that we have seen on a mature company. I kept the moving average at a 40-period setting, which is what the weekly has above. It hasn't been touched since 2012. The rate of acceleration on the purple area shows the relative strength compared to the $SPX.

Recently, the Microsoft stock angle-of-attack accelerated yet again to the extreme Arc-of-F18-fighter-jet-mode-going-vertical, as they are now a normal event for mature predictable revenues. While the ConV19 virus has become the focal point of every news channel, Microsoft's stock has actually ramped up its Top Gun momentum. That is more easily seen on the daily. No, it doesn't have a vaccine, it's just where the groupthink of "money managers" have congregated in the church of "what-is-working-now" that won't be hurt by ConV19.

We continue to live in parabolic times, week after week. Only two weeks ago, the ever-optimistic Tesla said they would not raise capital. We wake up to a Tesla that raised another $2B in capital with a stock sale overnight. When you get an inter-continental ballistic missile weighing in on your stock chart, what was said yesterday doesn't matter.

Here is a stock aptly symbolized with a name Galactic Holdings, ticker SPCE. The stock was recently brought onto the NYSE on October 28th. That is a warm welcome onto the Galactica exchanges!

Before that was vegetables processed forever with the worst combination of food additives to be made to taste like beef. The moonshot was 10x on the IPO price.

As the computer programmers continue to develop and build algorithms to chase the stock charts higher, we'll live on the Arc of Sentiment.

Standing back, it is helpful to see if anyone is drunk at the party. It might be important to remember last year had flat earnings. From Barron's, January 20th, 2020:

"Earnings for S&P 500 Companies Probably Fell in 2019"

We had flat earnings in 2019 and a 30% upside ramp in the stock market. The ConV19 virus appears to be dramatically slowing the global growth rate in 2020. We are about 4 weeks into the coming supply chain disruption.

From my Twitter feed, paraphrased as I can't find the exact tweet:

"Markets top on euphoria. We are hardly at a euphoric state when everyone is trading with one foot out the door."

To me, seeing all of these parabolic moves suggests a euphoria like the Toronto Raptors winning the NBA title. Let's just call it rare. Microsoft ($45b) and Apple ($75b) alone had $120 billion in buybacks approved to buy their own stocks at all time highs. The number of shares on the stock exchanges reportedly dropped by 20% over the last 2 years, which held earnings S&P flat! Imagine, without buybacks, how the movie would play? CSX freight volumes and revenues were down, but the stock is up, because the company buys their own shares to hold it at a record high. The mirage of earnings per share. The financial analysts love using the EPS number to keep the mirage of growth going, because the actual YoY comparisons would scare regular financial investors expecting companies to grow.

As commodities fall into the well of despair, ships have stop shipping and shipping rates are water-falling around the world. The Fed is spending $400b before ConV19 and the US Government will spend more than $1 trillion a year to keep the bull market going, so what could go wrong? The Federal Reserve sees no signs of excess as they themselves pump $100 billion per month to "stabilize" the market. On the back of this liquidity, we see parabolas on industry ETFs. What would normally be a 5-year gain shows up in a year. Remarkable.

Microsoft is one of Robinhood's top stocks. I chatted with a gentleman yesterday who added Microsoft on the 2-day pullback. It continues to be a darling. The future is so bright because CFAs can map the revenue ramp going forward. I get it. I am not saying sell Microsoft. But it would be prudent to be aware of just how much sunshine is blowing around. Use a little morning quiet time to help in judging if this euphoria has a big runway ahead.

I produced a few videos recently.

Clues From Different Indexes

Here is a video from Market Buzz where I reviewed all the Marijuana names I track. There are over 90 stocks, so, if you are interested in the industry (which might have some upside as edibles and oils explode onto the market), you'll enjoy this content. I know they are out of favor. But being ready is half the battle.

Can Marijuana Names Make A Comeback?

Last Friday's Market Buzz video looked through the shipping stocks to help hunt for a turn in the freight moving.

And last Wednesday's Market Buzz was titled "All That Glitter." I covered off Tesla and Precious Metals like Gold and Silver names.

While the market is down marginally on Thursday morning, the bulls love trading on the back of ConV19 fears. The TV has us worried about the virus slowing trade, but the reality is that the individual companies, the Fed, the US Government and every government around the world is flooding liquidity and debt into the markets. This is a parade until it ceases. Trade well, but be very aware just how non-earnings related the move up in 2019 was even after all the buybacks, and it seems to be setting up for a tougher year so far with trade impairments. Perhaps we can rely on more Fed injections, more Microsoft and Apple (AAPL) buybacks and more US debt to keep the party going. I'll end on that positive note.

Good trading,
Greg Schnell, CMT, MFTA
Senior Technical Analyst,
Author, Stock Charts For Dummies

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Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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