TheStreet

Microsoft (MSFT - Get Report) is in full-blown breakout mode this week, following Friday's announcement that the company's cloud services business had won the Pentagon's $10 billion JEDI contract.

While Microsoft's fiscal first-quarter earnings call earlier in the week was a positive for the company (with shares climbing about 2% in reaction to the numbers), it was upset over Amazon.com's (AMZN - Get Report) industry-leading AWS unit that's impacting shares the most this month. Microsoft hit a record high of $145.67 during Monday's trading session.

And the win sets the stage for even more upside in shares of Microsoft in the final stretch of 2019.

To figure out why the cloud contract-fueled breakout matters so much, we're turning to the chart for a technical look at the price action this fall - and how to trade it from here.

Microsoft has been a stellar performer in 2019, surging more than 43% on a total returns basis since the calendar flipped to January. That's almost double the return of the rest of the S&P 500 year to date.

Just as importantly, Microsoft's run-up has been technical obedient.

Shares have spent much of the year in a very well-defined uptrend, rallying higher on every successive test of trendline support on the way up. In August, Microsoft's technical trajectory changed: shares went from rallying in an uptrend to consolidating sideways.

But that sideways consolidation actually set the stage for an important buy signal in shares - one that we've been waiting for since the end of August. And while the breakout buy signal took a little longer to materialize than expected, it nevertheless came at the start of this week, with the JEDI contract win as the catalyst.

That breakout above $140 resistance is our indication that increasingly eager buyers have absorbed the excess supply of shares that's prevented Microsoft from rallying higher on all previous attempts starting in late July. Now, with a clear indication that buyers are back in control of things, it makes sense to pull the trigger on Microsoft's stock.

Relative strength continues to be a very important indicator for market participants this fall, and in Microsoft's case, the long-term uptrend in relative strength signals that shares continue to systematically outperform the broad market, even now.

Expect some near-term cooling off following the big breakout higher. Meanwhile, the do-not-cross line is at this stock's prior lows around $135. If Microsoft violates that line in the sand, then the breakout is invalidated and you don't want to own shares anymore.

Until then, Microsoft looks likely to finish 2019 on a high note.

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

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.