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Microsoft Stock Up, Giant Funds Use High Frequency Trading Clout

NEW YORK (TheStreet) -- Toward the end of June, Microsoft's (MSFT - Get Report) chart started to develop a compression pattern, building a solid technical support level for price just above the previous resistance level.

Technical analysis should not be used as a predictive strategy, but it is useful as a tool for determining which market participants are buying or selling the stock. In this case, Microsoft clearly shows a steady buying mode and a holding pattern during the candlestick compression pattern, also there was no substantial selling at that time.

Technical patterns reveal that giant funds were buying Microsoft, well ahead of the news about the 18,000 layoffs. Microsoft needed to cut costs, and payroll is the number one business expense. Giant funds are the major investors, owning 73% of the outstanding shares at this time. They have plenty of clout in terms of what information they can demand, as long as the information is not insider trading.

The Microsoft chart below shows that giant funds were buying, then professional traders moved up the price. The long white candle is not high frequency trading action, but rather professional traders and smaller funds buying Microsoft on that day. It is well known that Dark Pools and professional traders now prefer to trade toward the end of day, due to the dominance of high frequency trading at market open.

The final run up that formed the black candle is the day that High Frequency Traders bought this stock, due to the news release about the layoffs. In this instance, professional traders were able to front run the High Frequency Traders, and here's how they did it.

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