It’s an extreme way to demonstrate just how severe the pressure has been on equities lately. Microsoft is a top 10 holding in the Dow Jones Industrial Average, which fell nearly 3,000 points on Monday. It’s also a top holding in the S&P 500 and the Nasdaq, with each index shedding roughly 12% on Monday.
So far on Tuesday, the indices are posting a modest bounce, while Microsoft stock is up about 5% to $142.
Investors are craving some relief in the stock market. We’ve seen an unprecedented rise in volatility to go alongside the unprecedented velocity of the recent decline. At best, it has left bulls unable to exit at higher prices. At worst, it’s got investors puking up assets as they try to meet margin calls, stock-option obligations and other events causing catastrophic losses.
Perhaps Microsoft is caught in the latter as investors sell what they can vs. what they want to, and as selling in the indices weighs on its top holdings. Remember, Microsoft has one of the strongest balance sheets in the market. If any company can weather the storm it’s Microsoft, alongside Alphabet (GOOGL) - Get Report and some other tech titans.
Amid all this selling pressure, the prior breakout level near $140 has held as support for Microsoft stock. That support level showed some cracks last week and actually started to give way on Monday. Simply put, as good of a stock as Microsoft is, it just couldn’t handle the selling pressure.
We're seeing some relief on Tuesday as equities bounce. What happens from here will be critical for Microsoft.
Shares recently closed below that notable breakout point at $140. However, after reclaiming this mark on Tuesday, bulls will want to see this level hold as support should it be retested in the near term. Should it fail to hold, the recent low at $135 is on the table, followed by $129.
On the upside, I want to see if Microsoft stock can reclaim the 200-day moving average. This level has been notable over the past five sessions, and reclaiming it would give bulls additional momentum. If not, $140 remains in play. If it can reclaim the 200-day moving average, the stock could climb to $160 and the 100-day moving average.
Above that puts the 50-day moving average in play, along with the $174 mark above that. As always in a world of heightened volatility, traders must be disciplined and go level to level. Whether that’s with Microsoft or the S&P 500.