PRINT THIS ARTICLE
Microsoft In Failure Mode02/28/07 09:43:19 AM
by Gary Grosschadl
The violation of a significant moving average line often is a tipoff to a trend change or start of a correction.
|Figure 1 shows Microsoft (MSFT) enjoyed a large upleg starting the summer of 2006, rising near 50%. Note how well the 50-day exponential moving average (EMA) carved out support. Now this support line is broken and is showing signs of switching polarity. What was support is now resistance. I call this a "failure mode," as I consider this 50-day EMA to be key resistance and rallies up to this line to be bear rallies. As long as this overhead resistance holds, I remain bearish on the stock.|
|Note the 200-day EMA, currently at 27.88. This could save the stock or cause a consolidation before possibly falling further. Either way, the 50-day EMA is now resistance. A bounce off the 200-day EMA may end up as another bear rally, keeping the stock in failure mode.|
|FIGURE 1: MSFT, DAILY. Has Microsoft topped out?|
|Graphic provided by: StockCharts.com.|
|Several indicators are worthy of note. The moving average convergence/divergence (MACD) and the relative strength index (RSI) both show major divergences to price action. As the stock was hitting a peak, these indicators failed to follow suit, hinting at a coming decline. Meanwhile, the Chaikin money flow indicator made a big shift to bearish power. When buying power dries up, bears often seize control.|
|Two targets are near $25 and 23.50. They represent previous levels of support that could be bounce targets. Failure there would bring a likely test of the low near $21.|
|Until MSFT can rise above its 50-day EMA and once again turn this moving average into support, the bears will rule the day.|
Independent Canadian equities trader and technical analyst based in Peterborough
here for more information about our publications!
PRINT THIS ARTICLE
Date: 03/01/07Rank: 5Comment: