The stock woke up in 2006 and went vertical, ahead of its long awaited Vista OS release. The January 2007 shelf date for that product delivered a sell-the-news reaction, with price dropping down and testing a four-year trend line breakout within the larger-scale pattern. It bounced back above that level in late April and is now testing the rally high.

This positive price action sets up supportive conditions for the stock to eventually rally above the January high at $31.48 and test 2001 resistance at $34. Notably, that price level marks the last major obstacle before Microsoft can start a powerful run that could reach the all-time high in the $50s.

Keep in mind, this is a long-term view. Realistically it could take another year or two before that bullish event finally reaches fruition. In the shorter term, the stock could pull back for several months to consolidate its second-quarter gains. But this decline should hold above trend line support near $29 in preparation for a dramatic run through the highs.
At the time of publication, Farley had no positions in any of the stocks mentioned in this post, although holdings can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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