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FLAGS AND PENNANTS

Microsoft Continues To Show Accumulation

09/12/06 08:49:50 AM
by Arthur Hill

Strong Chaikin money flow and a bullish pattern point to higher prices for Microsoft.

Security:   MSFT
Position:   Accumulate

Microsoft led the market higher from mid-July to mid-August and then consolidated with a falling flag. This advance occurred in two stages with a consolidation in between (blue box). The mid-August gap and breakout signaled a continuation higher and the stock started the falling flag around 26. The gap is holding, and this is bullish, as long as it remains unfilled. See Figure 1.

FIGURE 1: MICROSOFT, WEEKLY. MSFT led the market higher from mid-May to mid-August and then consolidated with a falling flag.
Graphic provided by: MetaStock.
 
The falling flag is also bullish and traders should look for a continuation breakout. The stock firmed around 25.5 late last week and formed a long white candlestick on Monday. The candlestick closed above the upper flag trendline and a breakout looks imminent. I would like to see the stock break through the late August and early September highs to complete the breakout and signal a continuation higher. At the very least, Monday's bounce affirms key support at 25.3 and a move below this level would negate the flag.

The Chaikin money flow (CMF) remains strong and this shows accumulation within the flag. On the whole, the CMF has been above 0.20 (20%) the last two weeks and buyers are keeping up the pressure. This also increases the odds of a breakout in the stock. A move into negative territory for CMF would show a sudden change of heart and this would serve as a warning sign.


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
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