Chart of the week: could TikTok topple Microsoft?
It’s in the race to buy the Chinese social media app, but our chartist has his doubts.
1st September 2020 15:19
by John Burford from interactive investor
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It’s in the race to buy the popular Chinese social media app, but our chartist has his doubts.
Microsoft spikes to $244 (£181.7) – is this the high?
I last covered this share on 27 July where I compared the meteoric ascent of its share price compared with that of IBM (NYSE:IBM). The comparison was not favourable to the latter company.
In that time, IBM has moved precisely nowhere while Microsoft (NASDAQ:MSFT) has risen from $203 to last week’s high of $244 (+15%) - a tidy gain on the back of the joint bid with Walmart for the US operations of the hit social media platform du jour – TikTok.
This is where teenagers create videos of themselves lip-synching to their “music” and send it to all their friends. Hmm.
Maybe I am of the wrong generation to truly appreciate the earth-shattering significance of this latest development, and maybe teenagers now have a lot more money to spend on frivolities than I did, but I sense a short-lived fad in the making.
So, this sets up a real risk that Microsoft will overpay and be landed with a lemon. Clever Chinese! And they seem to be playing hard to get. Brilliant!
When a mania is flourishing – as today – almost anything sells and at a high price. A very high price.
So, are we at a major turning point for the shares?
Source: interactive investor. Past performance is not a guide to future performance.
The action on Friday is noteworthy as shares were bid up to a spike high of $244 and then promptly fell back to under $230. There is evidently huge resistance at the $244 area.
This type of spiky action, coming after a very lengthy bull run, is often a sign of a ‘buying climax’ where the market simply runs out of buyers and the sellers take over (a mixture of profit-takers and short sellers).
By my estimation, it would take a huge amount of buying to push shares to new highs, so taking at least some profits here appears prudent after such a lengthy advance.
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John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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