Tech Rally in Jeopardy?

The disappointing earnings from Microsoft and Amazon may have sapped the strength of the tech rally.
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By Kevin Grewal, editorial director at

Did the earnings misses by two giant tech companies signal the end of the tech rally?

Software giant


(MSFT) - Get Report

reported quarterly earnings of 36 cents a share that terribly missing Wall Street's forecasts. The company endured its first ever quarter of declining sales of its Windows operating systems. Global demand for the product was deeply cut by the recession and some think that businesses and individuals are holding off on upgrading systems until Microsoft releases its 7.0 version of the software. The stock had been in an uptrend and has bounced back from a $15.15 close in March to a Thursday close of $25.56, a jump of 69%.

The other disappointment came from the largest Internet retailer


(AMZN) - Get Report

, which missed analyst expectations by posting a 10% profit decline.

Experts suggest that its enticing deals including low-cost products and free shipping promotions have started to eat away at profits. Up to the report, the stock had been in an upward trend, posting a gain of 94% after moving from a January low of $48.44 to a Thursday close at $93.87.

On the other hand,


(AAPL) - Get Report

continues to outperform analyst expectations as it smashed Wall Street's expectation, driven by an increase in demand for its iPhone and Mac products. Many attribute that the surge in demand for the iPhone to price cuts that they say can't be sustained. The company's stock has rebounded nicely, more than doubling from its January low of $78.20 to close at $157.82 on Thursday.

The most recent rallies have been caused by cost-cutting measures and not necessarily increases in revenues. One must wonder, can these companies continue to implement lean measures. After all, increases in revenue are probably not likely to occur anytime soon. The Reuters/University of Michigan index of consumer sentiment declined in July, indicating that consumers are still wary of the health of the economy and will continue to think twice before purchasing that new piece of technology.

When investing in the previously mentioned equities, keep in mind they come with risks. To mitigate these risks, implementing an exit strategy is vital. According to the most recent data from an upward trend in these equities will be coming to an end at the following price points: MSFT at $23.58; AMZN at $ 85.01; AAPL at $146.21. These triggers change as the markets fluctuate and updated data is available at