Trading Microsoft After Its Big Run

Microsoft has been a beast on the rebound, but is it running out of steam? Let's look at the chart for the stock.
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Microsoft  (MSFT) - Get Report traded about flat on Thursday, which is interesting given the 2% rally in the S&P 500.

In fact, tech in general is struggling, with Apple  (AAPL) - Get Report flat on the day, while Alphabet  (GOOGL) - Get Report and  (AMZN) - Get Report were both down on the session. 

On the one hand, it’s somewhat concerning to see a market leader like Microsoft not participating in Thursday’s rally. On the other hand, it continues to hold up despite delaying its Surface Neo product, while pausing work on Windows 10X.

Is mega-cap tech trying to tell us something?

At this stage of the game - with the S&P 500 up a robust 28.5% from the March lows - it’s anyone’s guess. All we can do as traders is go from level to level, allowing price action to be our guide, not the news. In that light, let’s look at the charts.

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Trading Microsoft Stock

Daily chart of Microsoft stock.

Daily chart of Microsoft stock.

Let’s start with the good. Microsoft stock was able to hammer out a bottom near $135, reclaim several major moving averages and is now digesting in the low-$160s.

The last few weeks of price action has done a lot of good for the bulls. By reclaiming so many key levels, retracements and moving averages, it gives investors multiple support layers to contemplate, rather than a near-endless amount of resistance levels.

As much as I like to see stocks rally, I have to be realistic and take some of this move with a grain of salt. Does that mean the upside is done in the market or in Microsoft? No, but the risk/reward is becoming less attractive the higher we go without any sort of back-and-fill action.

Should Microsoft stock continue higher, bulls need to see it reclaim and close above the 61.8% retracement near $168 and the $170 level. Over it puts $175 to $178 in play, the latter of which is the 78.6% retracement from the February highs. Over that puts $180-plus in play, which is incredible to even be talking about given the price action over the past few weeks.

On the downside, the first clue of caution would be a close below the 50-day moving average and $162.50. If MSFT can’t hold this mark, it puts sub-$160 in play. I think ultimately many investors - even the bulls - would like a reasonable pullback in Microsoft.

A dip down to the $150 level and 200-day moving average would be one such pullback. Even a dip down to prior range resistance at $140 would represent a higher low, giving bulls a great buying opportunity while maintaining bullish construction.