Will Security Flaw Hurt Microsoft Stock?

NEW YORK (TheStreet) -- Microsoft (MSFT) disclosed on Saturday that a third-party computer security firm found a flaw in their Internet Explorer Web browser and that hackers have already cyber-attacked some U.S. companies. This could become a widespread problem as the company prepares a software patch to close the holes.

According to Reuters, 55% of all personal computers use some version of Internet Explorer. In addition, computers still running Windows XP will not be provided with a fix for this potential security breach.

On April 7, I wrote Will Investors Support Microsoft After It Ends Windows XP Support? The answer to this question turned out to be yes as the company reported better-than-expected earnings when it reported quarterly results after the closing bell on April 24. The company beat analysts' earnings per share estimates by 6 cents, earning 68 cents a share. The stock traded as high as $40.68 on April 25 but stayed below its multiyear intraday high at $41.66 set on April 2. It is currently at $41, up nearly 10% for the year to date.

My opinion on Windows XP is the same as it was on April 7. "Microsoft should reconsider suspending support due to the continued wide use of Windows XP...I say they risk class-action lawsuits given potential significant breaches." This new security flaw makes in more important for Microsoft to renew support for XP.

In my article I mentioned that Window XP is still widely used by 44% of businesses and that 30% of all PC computers still use Windows XP. I don't believe that these statistics have changed much. It is not a prudent business decision to stop supporting such a popular product given the cyber-security risks Microsoft chooses to ignore.

Let's look at the daily chart for Microsoft:

Courtesy of MetaStock Xenith

Microsoft ($40.61) moved back above its 21-day simple moving average at $40.14 this morning and is above its 50-day SMA at $39.15 and its 200-day SMA at $36.03. Daily slow stochastics are on the rise, so the daily chart is ignoring any adverse effects from the security breach.

Let's look at the weekly chart for Microsoft:

Courtesy of MetaStock Xenith

The weekly chart shifts to negative given a close this week below its five-week modified moving average at $39.53 with its 200-week SMA at $29.75. Note that the 12x3x3 weekly slow stochastic is declining.

Quarterly, semiannual and annual value levels at $35.05, $34.59 and $34.02 with a weekly pivot at $40.57 and monthly risky level at $42.77.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com.

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