Microsoft (MSFT) reported earnings this week, and shares gapped higher and right into long-term technical resistance. The integrity of this level will help determine the direction of the stock price going forward.
A large horizontal channel pattern formed on the weekly chart in 2015, and a breakout from this pattern projected an $8 move. The breakout occurred later that year, and the stock rapidly met the target projection. It began trading in a second channel, with the $56 level acting as resistance and the resistance level of the previous channel acting as support. It has been moving in this new horizontal channel for the last nine months.
On the daily timeframe, the stock can be seen gaping up and into channel resistance after the company reported earnings this week There had been strong positive momentum going into the report after the June low was successfully tested, but Chaikin money flow has been tracking lower during this period and is currently below its center line, and the relative strength index is entering an oversold condition.
These are not definitive indications that the stock is preparing to pull back, but they are signs of waning price and money flow momentum.
If Microsoft is able to move above resistance, the channel pattern projects another $8 move in the stock, but there will likely have to be some digestion of the recent gains before it will be able to meet that objective. If the stock fails at this current resistance level, the July gap is the first downside objective, the next is the rising 200-day moving average currently in the $52 and finally there is the channel bottom.