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STATISTICS


Microsoft Ready To Move Lower

09/02/11 02:08:41 PM
by Alan R. Northam

Statistical analysis shows that Microsoft is in a long-term and intermediate-term downtrend and that it is now ready to move lower.

Security:   MSFT
Position:   N/A

The lower panel of Figure 1 shows the daily price bars of Microsoft (MSFT). This figure also shows the 200-day linear regression trendline (middle green line) along with the upper and lower two sigma channel lines. This chart shows the 200-day linear regression trendline and its associated upper and lower two sigma channel lines sloping down. This downward slope is an indication that the long-term trend of Microsoft is down. The upper two sigma channel acts as resistance, and as can be seen, Microsoft has moved up to the upper channel line twice in the last 200 days, bounced off and moved back to the linear regression line (middle line). The lower two sigma channel line acts as support. A move through this line would indicate an increase in the acceleration of price in the downward direction.

FIGURE 1: MSFT, DAILY. This chart shows the daily price chart of Microsoft (MSFT), in the lower panel along with its downsloping 200-day linear regression trendline and its upper and lower two sigma channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator.
Graphic provided by: MetaStock.
 
The linear regression slope indicator is shown in the top panel. This indicator measures trend reversals and the momentum of the trend. When this indicator crosses to above the zero line, it indicates a reversal from down to up. When it crosses below the zero line, it indicates a reversal from up to down. As can be seen from the chart, this indicator crossed below the zero line in mid-June, indicating a reversal in the long-term trend of Microsoft from up to down. Note also that this indicator continues to move down, indicating the downtrend continues to increase in momentum.

The R-squared indicator is shown in the next lower panel. This indicator measures the confidence in the trend as well as its strength. When this indicator moves above its critical line, it indicates there is a 95% confidence level that the trend will continue. In addition, as long as this indicator continues to move upward, it is an indication that the trend continues to strengthen. Note that this indicator moved above its critical line in late June, indicating a 95% confidence level that the trend will continue. Note also that the downtrend has in fact continued in the downward direction for 52 days since the crossing. Further note that this indicator continues to move up, indicating that the downtrend continues to strengthen.

Figure 2 shows the 50-day linear regression trendline along with its upper and lower two sigma channel lines, representing the intermediate-term time frame within the longer-term 200-day time frame. Note that the linear regression trendline and its upper and lower channel lines are also sloping down. This is an indication that the shorter intermediate-term trend is also downward.

Looking at the R-squared indicator, note that it has just crossed to above its critical level, indicating that there is now a 95% confidence level that the intermediate-term trend is now downward. Note also that the linear regression slope indicator in the top panel is below its zero line and pointing down, indicating that the intermediate-term downtrend continues to strengthen.

FIGURE 2: MSFT, DAILY. This chart shows the daily price chart of Microsoft (MSFT) in the lower panel along with its downsloping 50-day linear regression trendline and its upper and lower two sigma channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator. The bottom panel shows a statistical analysis of volume.
Graphic provided by: MetaStock.
 
The bottom panel shows the results of the statistical analysis of volume. The green bars show when volume is statistically in an uptrend with a 95% confidence level. The level of volume is one way of measuring trader sentiment, and thus, the green bars show when traders are bullish. The red bars show when volume is statistically in a downtrend with a 95% confidence level. The red bars then show when traders are bearish. The gray bars show when traders are neither bullish or bearish. Note from this analysis that the sentiment of traders has moved from bullish during mid-June to early August to bearish from mid-August onward. Thus, the current price rally from mid-August to date is doomed to failure, as the trading sentiment is bearish and not bullish.

One final note: Please note that the last trading bar is red, indicating the possibility of a pivot point forming and marking the point at which Microsoft could be turning back down.

In conclusion, this statistical analysis shows that the long-term trend of Microsoft is down. In addition, the intermediate-term trend is also down. These two trends together indicate that the next leg in the journey of Microsoft is downward and not upward.

As to whether Microsoft is ready to continue its downward direction, statistical volume analysis shows that the trading sentiment is bearish and a possible pivot point is forming, indicating that now could be that time.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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