Microsoft is testing a major technical level after its post-earnings plunge
I often call the 200-day moving average the key barometer of health when judging a stock. Above it – the patient is healthy. Testing it – we need to examine and wait for further evidence to confirm its health. Below it – I yield to that the old adage: Bad things happen under the 200-day moving average. Right now, that prime example is Microsoft (MSFT) . As we headed into last night’s results, Microsoft rallied right back to its 200-day moving average. I discussed the importance of this with Kelly Evans on ” Power Lunch ” earlier in the week. A move was coming. We knew it both fundamentally and technically. The signals were there. The good old “death cross” formed two weeks ago. Historically, it’s a lagging indicator but indicative of the trend change. We had a classic double-top and rounding top formation as well. The rally back to the 200-day moving average was a textbook relief rally and set us up for today’s move. In the case of Meta (META) , shares recaptured the 200-day and gapped above it – crisis averted for now. As for Microsoft, we have clearer levels of risk and reward and it’s time to act. Let’s break it down. Key levels to watch and how to trade Shares gapped below their first level of support around $450 and fell right to a critical level around $425. That level is holding for now and may be the area worth taking a position with a short leash. Why? Let us count the ways. The $425 level coincides with the upwards gap and prior low from its April 30 earnings. This is the first re-test of that low, and buyers should step in. Secondly, it also coincides with a key Fibonacci retracement level that tends to act as temporary support as well. The flush-out is there and may take a day or two to digest, but we believe the worst of this move is over and worth trading for a relief rally back to $450. Expect analyst downgrades over the coming days as 71 have a buy rating with the average target being $611 — 43% above current levels. That’s the near-term set-up for a short-term trade, but there is still potential technical danger looming. Watch that gap below — if we start to break this support level a trip below $400 is likely. Set stops accordingly and tight. If stopped out — buy it back when it clears $425 as momentum should push it higher. Longer-term take When in doubt — zoom out. Seeing that Microsoft is a core holding in many of our portfolios — mine included — it’s good to put things in a bigger perspective. In this five-year weekly chart, we see why this current level is so critical when viewing the longer-term uptrend. Our Fibonacci retracement levels on a five-year basis coincide with the peak-to-trough move going back from its 2022 lows to recent peaks. Again, if we can hold this area, expect a bounce back. If not, that longer term uptrend comes into play just below $400. For those that have been looking to add this to your long-term portfolio the risk/reward is the most favorable it’s been in years. If concerned about that gap, then nibble here and wait for that potential washout to add. The stock is nearing oversold territory on its RSI and in the past this lower level has proven to be a good longer-term opportunity. — Jay Woods, CMT with Chase Games DISCLOSURES: Woods and his family own shares of Microsoft. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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