Microsoft Is Breaking Out - Here’s the Trade

Microsoft is finally starting to play catch-up with some of its peers as it breaks out to new highs. Here's a fresh look at the stock.
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Microsoft  (MSFT) - Get Report isn’t rocketing higher on Wednesday but is up a reasonable 2.25%. However, the move is sending shares to new all-time highs and helping to trigger a fresh breakout.

Of course, the 25% surge in Salesforce  (CRM) - Get Report on better-than-expected earnings and inclusion in the Dow Jones Industrial Average seems to be helping give Microsoft a boost.

It also helps that Facebook  (FB) - Get Report, Apple  (AAPL) - Get Report, Amazon  (AMZN) - Get Report and other mega-cap tech stocks are moving higher. I had Microsoft on breakout watch last week and this Tuesday as shares pushed higher into resistance.

While there’s still time for this name to fade and give up its gains, the initial move looks promising. Let’s take a closer look at the charts.

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Trading Microsoft Stock

Daily chart of Microsoft stock.

Daily chart of Microsoft stock.

Shares continued to ride the 50-day moving average and uptrend support (blue line) higher over the last month. However, shares failed to gain the type of upside traction that some of its peers were seeing.

That doesn’t really change with Wednesday’s modest rally, but it could be enough to set the stage for a large move to the upside.

With Wednesday’s clean break over $216, Microsoft stock is clearing two months worth of resistance. A close above this level puts the 161.8% extension in play up near $225.

Should Microsoft really stomp on the gas pedal, a move to the two-times range extension near $247 could be on the table. Keep in mind, Microsoft and Apple once traded spots as the largest market cap stock this year. 

With a market cap of “just” $1.67 trillion though, Microsoft notably lags Apple’s current $2.15 trillion market cap. A catch-up trade could be in the cards, ultimately putting the two-times range extension in play.

On the downside, look for a close back below $216. In that case, Microsoft loses some of its momentum, putting the 50-day moving average and uptrend support back in play.