Question 1: When is it a better time to buy Microsoft stock - after a drop or after a rise?Answer:Consider two situations,Case 1: Microsoft stock drops by -5% or more in a monthCase 2: Microsoft stock rises by 5% or more in a month
MSFT stock fares better after Case 1, with a 73.9% chance of rise over the next month (21 trading days) under Case 1 (where the stock has suffered a 5% loss over the previous month), versus, a 61.6% chance of rise for Case 2. This would suggest that it is better to buy MSFT stock after a recent drop
Try the Trefis machine learning engine to see for yourself how Microsoft stock is likely to behave after any specific gain or loss over a period.
Question 2: Does Microsoft stock have a higher chance of rise after a steeper drop?Answer:Trefis machine learning engine's calculations show that for most stocks, the chance of rise reduces as the drop gets steeper. However, after unusually high declines of -10% or more, there is usually an improvement in the chance of rise. This makes sense intuitively, as markets often overreact to bad news around a company
For MSFT stock, the probability of positive returns over the next month (21 trading days) after a drop of N% over the last 21 trading days is detailed in the table below, along with the positive return probability for the S&P500:
Previous 21 days% DropNext 21 daysPositive Return ProbabilityMSFT S&P 500-1%68.6%71.1%-3%69.4%73.0%-5%73.9%72.7%-7.5%80.7%78.3%-10%87.5%78.4%
Question 3: What about Microsoft stock's chance of rise after a recent rally?
Answer:MSFT's probability of positive returns over the next month (21 trading days) after a gain of N% over the last 21 trading days is detailed in the table below, along with the positive return probability for the S&P500:
Previous 21 days% RiseNext 21 daysPositive Return ProbabilityMSFT S&P 500+1%66.6%67.8%+3%64.0%68.5%+5%61.6%67.0%+7.5%57.6%68.4%+10%55.9%74.2%