Weighing Microsoft's Laggardly Report

"Look, your worship, what we see there are not giants but windmills, and what seem to be their arms are the vanes that turned by the wind make the millstone go."

Sancho Panza in "Don Quixote," by Miguel de Cervantes (1605)

Microsoft (MSFT - commentary - Cramer's Take), the mighty software giant, is weighing on the market this morning. Its earnings report last night was weak on Xbox costs and several firms have downgraded the stock this morning. The stock is down close to $2.50 in pre-market trading. It certainly is not a pretty report and given Microsoft's huge capitalization it is going to weigh on the major indices.

However, Microsoft has been a rather benign giant for quite some time. It matters because Windows is still the heart of most computers, but it has not been a market-leading stock for awhile. In fact, Microsoft is still at the same price levels it first hit back at the end of 1998.

Nonetheless, because of its huge size and visibility it has been considered a safe haven for conservative capital looking for long-term stability. The sharp dip this morning and the downgrades from analysts are going to shake the confidence of conservative investors who felt safe in the arms of the giant.

The question for us to contemplate this morning is whether this poor report is going to have broader, longer-lasting effects on the market, or this is just a healthy bloodletting that will lead to a reallocation into stocks other than Microsoft. Yes, Microsoft is still a giant but it is an aging one and like its brother giants such as General Electric and General Motors is not necessarily indicative of broad market healthy.

Frankly, I didn't believe the Microsoft report was that terrible and it doesn't deserve the hit it is taking this morning. However, a lot of folks were looking for big growth with the rollout of the new version of Windows and Xbox, and they're now questioning that hope. We are buying a little bit this morning for very long-term, small-sized, conservative client accounts.

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James "Rev Shark" De Porre is a self-taught trader who primarily trades for his own account from his home on Anna Maria Island, Fla. He is a member of the Michigan Bar Association and a former tax attorney and CPA. De Porre holds business and law degrees from the University of Michigan. He was formerly the host of America Online's The Shark Attack and presently operates SuperTraders.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here to send him an email.