Microsoft Offers a Reason to Worry By Helene Meisler Special to TheStreet.com 8/7/01 9:16 AM ET

Just as recent rallies haven't been filled with enthusiasm, the selloff of the past two days hasn't exactly brought the market to its knees. On both sides, it's been tepid at best.

The volume is so low on the upside that you can't say the rallies are sustainable. But the volume is so low on the downside, too, that you can't say the sellers are pounding the market. Instead, if you had gone on vacation last week, you'd have returned to find all three major averages exactly where they were when you left. Oh, the Philadelphia Stock Exchange Semiconductor Index would be somewhat higher, but the debate between the bulls and the bears would still be the same.

I could tell you that Monday's advance/decline line was the worst we've seen in two weeks and say that's bearish. Or I could say that volume was the lowest we've seen in three months (if we ignore the week of July 4) and say that's good news. I could note that the number of stocks making new lows on the New York Stock Exchange didn't expand and call that good news. Or I could add that the most recent rally didn't even surpass the previous rally's highs and call that bad news. I could easily go on and on like this.

If we listed the reasons for disliking last week's rally on one side and the reasons for thinking the past two days' declines weren't so bad on the other side, we'd probably come out even. So rather than listing the good and bad, I'm eyeing one stock that I believe is important, and it hasn't been acting all that great.

That stock is Microsoft (MSFT:Nasdaq - news - commentary). Why do I find it so interesting in here? Off its spring lows, Microsoft appeared to be building a base, but since mid-April, it's gone absolutely nowhere. In that same time frame, the lawsuit was "downgraded" and the firm's revenue was up, yet the stock hasn't responded. I always worry when a stock doesn't move on good news.

Microsoft Stalls Out If it breaks the 64-65 level, watch out.

Microsoft is now sitting at an important inflection point. If you draw in that uptrend line connecting the December low with the twin lows in March and April, you'll see the line comes in around 64 or 65, where Microsoft is trading now. What makes this level even more important is that a previous low (from the early July dip) is here, too. When a stock's level contains both a trend line and a previous trading point, it makes that level more significant.

Each day over the past few weeks, I've been posting the Microsoft chart. I've also been making notes that say, "If it breaks 64-65, it won't be good." Then I find myself pausing before I jot down yet another note right next to it: "If it holds, it'll be good."

So I know everyone's watching Cisco for its earnings, but I'm going to be keeping my eyes on Microsoft in the coming trading sessions. It's one of the few technology stocks that was "OK to buy" this past spring, and if it cracks here, we should be concerned.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.

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