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MOVING AVERAGES


A Big Test For Microsoft

04/09/07 09:22:42 AM
by Arthur Hill

Microsoft bounced recently, but a resistance test is at hand and the stock formed a potentially bearish wedge over the last few weeks.

Security:   MSFT
Position:   Hold

A pair of classic moving averages shows that Microsoft bounced off long-term support and is meeting medium-term resistance (Figure 1). The 50-day moving average covers around two and a half months, and I consider this a medium-term indicator. The 200-day moving average covers just over six and a half months, and I consider this a long-term indicator. The 200-day moving average is rising (bullish) and the 50-day moving average is falling (bearish). They are on a collision course and MSFT is caught in the middle. The stock bounced off support from the 200-day in mid-March and is now meeting resistance from the 50-day in early April.

FIGURE 1: MSFT, DAILY. Microsoft stock is caught in the middle as the 50-day moving average and the 200-day moving average races toward a collision.
Graphic provided by: TeleChart2007.
Graphic provided by: t.
 
In addition to resistance from the 50-day moving average, the stock has met resistance around 28.80–29.30 from broken supports. The stock established support at 29.30 in early January and broke this level in early February. The stock also established support at 28.80 in early December and broke this level in late February. These two broken supports turn into resistance and I am marking a resistance zone at 28.80–29.30.

FIGURE 2: MSFT, DAILY. In the four- to five-week trend, however, the stock is working its way higher within a small rising wedge.
Graphic provided by: TeleChart2007.
Graphic provided by: Telechart 2007.
 
Despite the resistance zone, the four- to five-week trend is up as the stock works its way higher within a small rising wedge (Figure 2). We should at least respect the bulls as long as the wedge rises. However, these patterns are typical for corrective rallies, and traders should also be on guard for a break down. The lower trendline of the rising wedge is the first level to watch, and a break below this trendline would be negative. I still see lots of support around 27.35 from the late March low and I am marking key support here. A break below this level would reverse the short-term uptrend and call for a continuation of the prior decline. This would be bearish for MSFT and weigh on the NASDAQ.



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: 04/09/07Rank: 4Comment: 
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