Software giant Microsoft (Nasdaq: MSFT) is reportedly cutting the price of its Windows 8.1 operating system for manufacturers of tablets and low-cost computers in an effort to compete with cheaper rivals like Google’s (Nasdaq: GOOG) Chromebooks.

#-ad_banner-#Bloomberg reported that people familiar with the program said license fees of $15 will be charged to manufacturers who want to preinstall the software on any devices that will retail for less than $250. That’s a 70% discount from the usual $50 fee.

In my view, this move was inevitable. Competition has stiffened in recent years for Microsoft, with Apple (Nasdaq: AAPL) making a huge push back into the personal computing/electronics space and Google transforming itself from an Internet search engine into a technology monster.

More importantly, we have witnessed a structural shift in the personal computing space thanks to the astonishing growth in smartphones and tablets. These devices, while admittedly still in the early stages from a functionality point of view, are increasingly becoming the epicenter of personal computing.

And the newer breed of technology companies like Google and Facebook (Nasdaq: FB) will take a larger part in this every day. The result is a healthy increase in competition that is forcing Microsoft to adapt and innovate like it hasn’t for a very long time.

Interestingly enough, despite the stiffening competition, MSFT currently trades at levels last seen in 2001 and 2007. While the stock’s 180% rally off its 2009 lows is in good part due to the general melt-up in stock prices since then, the fundamentals and technicals are supportive of further gains in the near, medium and longer terms.

Over the past 13 years, MSFT has traced out a massive base/bottom with long-term resistance (since around 2001) coming in near the $38 mark.

Through this lens, the early 2009 capitulation low could have served as the head of an inverse head-and-shoulders pattern. As I often discuss, however, I would not treat an inverse head-and-shoulders (or any other technical pattern, for that matter) over this long a timeframe in the traditional way. But I do see the resistance line at the $38 mark as a major level to overcome.

In other words, if MSFT can break past $38, it could open the way for the stock to move toward the $50 level over a two-year period.

On the daily chart below, MSFT made a higher low in January versus its September lows, which coincided with its 100-day simple moving average.

The stock retested this moving average as support in early February and then jumped higher, breaking past multi-week lateral resistance at $37.80 on Friday. Even though Friday’s close was near the day’s lows, MSFT now looks ripe to quickly move toward $39 and to make a serious attempt at pushing past the aforementioned long-term resistance area.

 Action to Take –>
— Buy MSFT at $38 or higher
— Set stop-loss at $37.25
— Set initial price target at $40 for a potential 5% gain
— Set secondary price target at $41 for a potential 8% gain in six to 12 weeks

This article was originally published at ProfitableTrading.com:
Software Giant Just a Few Cents Away From a Breakout ‘Buy’ Signal

P.S. Stocks like MSFT are exactly the kinds of investments my colleague Dave Forest looks for every day in his premium advisory Top 10 Stocks. In fact, Dave found a similar company that he thinks has even more potential — so much so that he named it one of his Top 10 Stocks for 2014. Click here now to read this special report.