Microsoft & Nike: Key Buy Levels to Watch Now

When a stock we believe has solid business fundamentals experiences a sell-off, it often presents a buying opportunity. The challenge lies in determining the right moment to enter the market. Valuation is the primary factor to consider, but during market-wide declines driven by sentiment, sellers may ignore fundamentals in their rush to exit. In such environments, price movements reflect both rational and irrational behavior, making technical analysis a valuable tool. Charts capture the collective actions of all traders, offering insights beyond pure fundamentals. While the S&P 500’s recent recovery is positive, the impact of earlier losses remains significant.

Our chart analysis focuses on straightforward elements: identifying support and resistance using the 50-day and 200-day moving averages, trendlines, and historical price levels. We also apply momentum indicators like the Relative Strength Index (RSI) to gauge overbought or oversold conditions. Volume analysis helps confirm whether price movements are backed by substantial trading activity. Even with an unfavorable technical outlook, we would consider purchasing shares of a fundamentally strong company if the valuation is compelling. Conversely, we avoid stocks with weak fundamentals, regardless of how attractive their charts appear. Establishing key levels in advance provides a strategic roadmap, helping investors stay disciplined and avoid emotional decisions during volatility.

Recently, we increased our positions in Corning and Honeywell, having bought both earlier in the week. We also added to our Meta Platforms holding. Below, we analyze two-year charts to identify potential entry points for Microsoft and Nike.

Microsoft shares are currently trading roughly 6.5% below their all-time peak. The 50-day moving average has offered little support since last August, but the $495 level has held firm, serving as a floor in early September and again last week. With this level intact, we view current prices as reasonable for initiating or adding to positions. The 50-day average sits just above at $514, so there’s no need for aggressive buying at this stage. If the stock reclaims this average and establishes it as support, investors might pay slightly more but gain confidence from the strengthened consolidation. Should $495 give way, the next significant support emerges around $465, where the 200-day moving average aligns with a previous high from July 2024. According to the Polarity Principle, former highs often transform into support levels once surpassed. A drop to $465 would place the stock nearly 15% off its highs, trading at about 29 times forward earnings, a valuation that appears relatively appealing compared to its two-year history.

Nike is showing improving fundamentals as management advances its turnaround strategy. At approximately $65 per share, the stock looks attractive based on anticipated earnings recovery by the end of fiscal year 2026. Technically, however, the chart appears weak, with the stock trading below both its 50-day and 200-day moving averages. These averages are nearing a “death cross,” typically viewed as a bearish signal. Despite the unattractive chart, we remain confident in the company’s underlying story. Still, we recognize the potential for further declines, especially with overhead resistance around $65.50. The next level to watch is $60, which provided support after the April lows. Below that, the mid-$50s range, representing the lowest points from April, could offer an highly attractive entry, assuming no major negative developments. Since those lows reflected peak trade war anxieties, and management has since made tangible progress, we would consider scaling into a position at current levels and adding on declines of roughly $3 to $5 per share.

Understanding “price action” involves observing how a stock behaves under various conditions. Does it rise on bad news, suggesting excessive pessimism? Does it fall despite positive earnings, like Palantir recently, indicating that expectations were already high? Does it hold steady during broader sell-offs, as Microsoft has, signaling either prior declines or perceived quality? These behaviors can guide investment timing. Interpreting price action is subjective, but combining it with chart analysis helps build positions methodically in turbulent markets.

For long-term investors, stock selection remains paramount. We avoid companies with weak fundamentals, no matter how promising their charts. Yet during periods of high volatility, technical analysis and price behavior provide a structured approach to investing in favored stocks, supporting disciplined capital deployment.

(Source: CNBC)