Microsoft: Ready to Break Out or Break Down?

Microsoft stock earlier this week flirted with a breakout. Now, the charts say that the concern is the potential for a breakdown.
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Megacap tech stocks lately have been sluggish, something to which Microsoft  (MSFT) - Get Report  investors can attest.

While the S&P 500, Dow industrials and Nasdaq have all gone on to make new all-time highs, the FAANG group -- plus Microsoft -- hasn't been quite as bullish.

It’s not as if this group is falling apart, but it's not rallying like the rest of the market.

Perhaps it’s just a part of the rotation trade we see at times, where certain groups outperform while others lag. 

After all, megacap tech earlier in the year helped keep the market afloat and led it out of its covid-19 rout. It may be other stocks' time to shine.

Apple  (AAPL) - Get Report, Amazon  (AMZN) - Get Report, Microsoft and others recently have struggled for upside traction. With $5.25 trillion in market cap value among the three of them, can we start to see some moves to the upside?

Microsoft, Apple and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells MSFT, AAPL or AMZN? Learn more now.

Trading Microsoft Stock

Weekly chart of Microsoft stock.

Weekly chart of Microsoft stock.

Rather than using a daily chart, I wanted to go with a weekly chart. Why? Because it emphasizes how tight Microsoft stock has gotten lately.

In early November, the stock was hitting its highest level since August, but those gains could not be sustained. On the plus side, the resulting dip was met by support at the 10-week and 20-week moving averages.

That has been the case for the proceeding four weeks as well. On Tuesday, Microsoft appeared ready to rotate over last week’s high -- but Wednesday’s dip proved the stock had other plans.

If it can clear last week’s high, Microsoft will be hitting its highest level in more than a month.

In that case, it will quickly have bulls looking to last month’s high at $227.52. Above that and investors are looking at a monthly-up rotation, putting the all-time high in play at $232.25.

On the flip side, the bulls have to be very careful about a weekly rotation to the downside.

Should the stock close below last week’s low at $210.84, it will also put Microsoft below the 10-week and 20-week moving averages. That would not be an encouraging sign.

In that scenario, it could put $200 in play. Near that area are the October and November lows — at $199.10 and $199.60, respectively — along with the 10-month moving average.

Losing $195.74, the September low, would be another discouraging blow.