The Microsoft Decision: Software Giant as Also-Ran

Could Microsoft be moving from the top of the tech-stock food chain to the bottom? Its chart activity in recent months suggests that may be true, at least in the short term.
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Look, there's no sense arguing whether or not you believe that Judge Thomas Penfield Jackson's findings-of-fact were correctly against Microsoft (MSFT) - Get Report and in support of the U.S. government's stance. The question is, could technical analysis have helped you figure out in advance what the judge's ruling would have been?

Remember that the

www.investorwords.com site defines "technical analysis" as a method of evaluating securities by relying on the assumption that market data, such as charts of price, volume and open interest, can help predict (usually short-term) market trends. Everyone knew that a decision was coming, but what nobody knew was which way the judge would decide.

Was there anything in the chart that suggested that Microsoft was going to take it on the chin? Here's my take.

As of the close last Friday, Microsoft was exactly where it was at the beginning of April 1999. So for more than seven months, Microsoft has had ignominious performance while the

Nasdaq Composite Index

has advanced 23%. Microsoft has had negative performance over a seven-month period before, so this is not so unusual (it happened toward the end of 1990-beginning of 1991, 1992, 1993, 1996, and the end of 1997-beginning of 1998). But the Nasdaq has never been simultaneously bullish during such a period.

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While it has been my experience to always give Microsoft the benefit of the doubt, it has been eerie watching it not perform these many months. Eerie because since 1994, Microsoft has led each new high in the Nasdaq Composite, yet this time it has been an also-ran.

The devil's advocates can address this concern by saying, "True, but at least Microsoft did not decline."

To which I would reply: "True, but this is the Technozoic Era: The age of the tyrant tech stocks. The inability of Microsoft to rally and join in the techno-reptilian feast said that it was likely, at least short term, that Microsoft was moving from the top of the tech-stock food chain to the bottom of the tech-stock food chain."

I realize this may be read as me playing Monday-morning quarterback. But the reasons listed above have kept me cautious on the stock. Was it enough to make me bearish? Heck no. This is Microsoft, remember?

Anyway, here are my key levels for the stock -- what would take me from cautious to concerned to bearish. Microsoft has support at 85, and a close under here will imply risk to 75. A close for Microsoft beneath 75 will be a bearish sign.

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at

jroque@thestreet.com.