Technically, you should buy Microsoft (Nasdaq: MSFT) right now.

We examined the company using Moving Average Convergence-Divergence (MACD), which is one of the most popular and long-used technical analysis indicators. Technical analysis is the field of buying and selling stocks not based on the underlying merits of a company, but rather on the patterns and formulas around its price movements.

Signal line crossover is one of the more common ways to interpret MACD. It uses a series of moving averages (in this case, nine, 12, and 26 days) to look for bullish and bearish crossovers that indicate a stock has momentum in one direction or another. Below you can find a current chart of Microsoft's MACD profile:


Confused? Well, that's preposterous! How could you ever be confused by something as simplistic as a Moving Average Convergence-Divergence chart! OK, we're jesting -- but in all seriousness, this is actually one of the simpler methods for technical analysis.

Still, if you'd strictly followed the rules, seeking out upward and downward momentum, you would have seen the stock move between buy and sell categories a fantastic 15 times!

A better way to size up companies
Here at Fool.com, we're more interested in other measures of company value. When we look at Microsoft and its peers, here are the areas that interest us:

Company

Microsoft

Apple (Nasdaq: AAPL)

Google (Nasdaq: GOOG)

Oracle (Nasdaq: ORCL)

Market cap (billions):

$221.1

$237.6

$159.4

$122.5

Qtrly rev growth (yoy):

22.4%

61.3%

23.5%

38.5%

Revenue (TTM, billions):

$62.5

$57.1

$26.2

$26.8

Operating margin (TTM):

39.5%

29.1%

35.9%

36.7%

P/E (TTM):

12.2

19.6

21.7

20.2

PEG (5-yr expected):

1.0

1.0

1.1

1.0

Source: Yahoo! Finance and CapitalIQ, a division of Standard and Poor's; TTM = trailing 12 months.

We prefer to look at the fundamental drivers of value. Investors should closely watch statistical fields like return on equity as well as qualitative values like competitive advantage and managerial effectiveness. These areas led investors like Warren Buffett and Seth Klarman to decades of outperformance. Buying and holding great companies is the best solution for individual investors to build lasting wealth and achieve their financial goals.

So when you look at Microsoft, don't evaluate it for crossing a momentum line. Buy or sell it for these reasons:

  • While conventional wisdom says that Microsoft is a slow-moving dinosaur of the last computing age, the company has quietly assembled one of the strongest cloud-computing strategies around. Microsoft is increasing the interoperability between its varying Office, collaboration, and business app products. Given its renewed focus on areas where it can leverage its large sales team and development expertise, Microsoft could backhand its critics in coming years with strong growth.
  • Microsoft is attractively priced right now. The company's forward P/E is roughly 10, an insane multiple for a company that should continue dominating the PC market for years to come. That's especially true given Microsoft's $4.24 in cash per share, and its history of returning cash to shareholders.
  • How quickly will consumers and companies move to new kinds of computers that aren't as reliant on Microsoft's operating system? If consumers shift spending to smartphones and tablets, Microsoft could quickly see its Windows revenue shrink. The company's mobile operating system, Windows Phone 7, still isn't slated for release until later this year. While the company waits for its release, its market share continues to shrivel.
  • Will the company keep throwing away money in its online endeavors? In the past 12 months, Microsoft's online business has lost $2.5 billion, while producing only $2.2 billion in revenue. Microsoft has few innovative solutions for beating Google in search, and it appears that continued development of its online search is no more frugal than burning $100 bills to light cigars.

Want to buy Microsoft based on technical merits today? Technically, odds are that you should flip and sell Microsoft sometime very soon. If that sounds like madness to you, well, we here at the Fool.com agree. In every market decline, technical analysis gets its share of proponents. The cries that "buy-and-hold is dead!" get louder, and individuals race toward schemes that promise greater wealth in a shorter amount of time.

I don't deny that technical analysis could make investors money. In any random short-term transaction, you're essentially playing a 50/50 game of chance. However, at the same time, most technical analysis schemes are a relatively simple science, eliminating the vast complexities of evaluating true company value. However attractive, this theory is ultimately the wrong path for individual investors. Technical analysis relies on long-held beliefs about exploiting momentum and consistent patterns throughout the market.

However, with as much as 75% of market trading now done by Ph.D-level programmers at massive high-frequency funds, even if opportunities existed, what chance would an individual have to sniff these deals out? With so much volume now driven by these funds, how can you be certain the same rules of patterns still even exist?

I could also point to Massey University's study across 49 countries, which showed that more than 5,000 trading rules add no value. However, the real reason to forget about technical investing is what we mentioned earlier: Microsoft crossed the crossover 15 times across the past year! While traders might not buy and sell with each crossing, cases of high momentum are normally short lived. The amount of trading in most technical analysis schemes racks up commission fees and short-term capital gains taxes, eating away at profits. More importantly, it takes away from the idea of holding a portfolio of great companies that can accrue wealth over a long time horizon.

That's why, at Fool.com, we recommend that individual investors establish a portfolio of well-managed companies with strong advantages over their competitors. In the end, we find that to be the best contributor to long-term wealth. More importantly, it'll spare you from sitting bleary-eyed in front of a computer with a Big Gulp full of coffee, frantically buying in and out of companies. But hey, if your idea of protecting your future is charting the ups and downs of Moving Average Convergence-Divergence charts, then Microsoft looks like a buy right now. Just don't expect to hold it for very long.

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Jeremy Phillips owns shares of no companies listed above. Microsoft is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google and Oracle. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.