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Overhead Challenges Facing Microsoft

04/29/05 08:47:56 AM
by Gary Grosschadl

Microsoft Corp. fell below its 200-day EMA last February and now has several upside challenges weighing down this giant bellwether stock.

Security:   MSFT
Position:   Hold

Microsoft fell below its 200-day exponential moving average (EMA) last February, and it now has several upside challenges weighing down the stock. The daily chart shown in Figure 1 suggests a possible formation of a triangle bottom. However, the most convincing triangle bottoms are not symmetrical; they are ideally ascending triangle bottoms (top of triangle horizontal with rising bottom trendline). The pattern here, however, could easily morph into a possible double-bottom pattern if this small triangle fails.

The overall impression I get from this chart is that there is too much overhead resistance offered by the ever-pervasive 200-day EMA, a minor trendline and three lines of resistance (between 25.50 and 26.50). A likely scenario could be a protracted bottom or at least a double-bottom attempt.

Figure 1: Hefty overhead resistance lessens the chance for a quick turnaround.
Graphic provided by:
A look at three trusted indicators shows key levels being tested in tandem with this test of the 200-day EMA. The moving average convergence/divergence (MACD) is at its often key zero level, a stall here or a successful break higher could be very telling. Note the declining histogram (vertical bars above the MACD lines) hints at a stall. Likewise, the relative strength index (RSI) and the stochastic oscillator are also testing their key 50 levels.

With the added pressure of the overall markets suffering a recent downturn, it seems unlikely that Microsoft will forge ahead on its own. Barring any surprise developments, look for a more convincing bottoming pattern before a buy signal develops.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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