(MSFT - Get Report)
is another double bottom trade to watch this week - just a sloppier one. The stock made two bottoms (one in June and one in July) before coming back up to test the pattern's breakout level at $30.75. And since then, they've been trading right around that price level.
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The fuzziness of MSFT's resistance level at $30.75 makes getting confirmation critical. Clearly this stock can trade above $30.75 without actually triggering a breakout. For this trade, my preferred breakout signal is a push above $30.75 resistance followed by a second consecutive day that stays above it. Traders got that confirmed breakout signal last week following news that Microsoft was expanding its presence in China.
Since then, shares have settled back down to test newfound support at $30.75 (once broken, resistance becomes support for a stock). When a stock breaks out only to reverse and re-test its breakout level, it's called a "throwback." Throwbacks may seem negative on their surface (shares are moving lower, after all), but they're actually positive because they reaffirm the stock's ability to hold newfound support at what was previously a resistance level. And it gives traders the opportunity to buy right at support.
If you want to take this Microsoft trade, I'd recommend waiting for shares to break $31.25 again before jumping in. MSFT is a notoriously sloppy chart, and it's important to make sure any moves higher are material before putting your cash on the line.
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