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CHART ANALYSIS


Beware of Microsoft

05/16/03 01:33:19 PM
by Arthur Hill

Goliath looking weak next to David.

Security:   MSFT
Position:   N/A

With a market capitalization around $280 billion, MSFT carries a big punch in the Nasdaq 100, S&P 100 and S&P 500. (Note: The Dow is a price weighted average). Over the last few weeks, small and mid-cap stocks have been outperforming large-caps. MSFT is no exception to the current trend, but its relative weakness is quite prevalent and could foreshadow a bearish reversal.

MSFT participated in the March advance, but has since fizzled and remains below the March reaction high. In contrast, all major indices have exceeded their March highs. In addition, most major indices have either exceeded their January highs or are testing resistance in this area (except for the Dow of course). MSFT remains well below its January high as traders and investors opt for different horses to ride the current advance.

Figure 1: Daily chart for MSFT
Graphic provided by: MetaStock.
 
In addition to underperformance, the advance over the last few weeks occurred on low volume. Since 11-Apr (green arrow), the stock advanced from 23.95 to 26.5 and volume was above average only once (16-Apr red arrow). Even though the stock gained on this day (close to close), the long black candlestick (open to close) suggests that selling pressure dominated buying pressure during the day.

Stocks that fail to partake on the way up often lead on the way down and traders should be on guard for a short-term bearish reversal or signal. The stock formed two harami patterns- a long white candlestick with a smaller candlestick nestled inside- over the last two weeks ( (blue arrows). These bearish candlestick patterns require confirmation and a long black candlestick in the next few days would do the trick. Traders may also turn to MACD and wait for a bearish signal crossover for additional confirmation.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 05/22/03Rank: 3Comment: 
Date: 05/23/03Rank: 4Comment: totally disagree
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