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MACD


Microsoft Hits The Gap Zone

12/06/07 09:20:07 AM
by Arthur Hill

After returning to its gap zone, Microsoft is showing signs of firmness. Is it poised for a breakout?

Security:   MSFT
Position:   Hold

Microsoft (MSFT) led the market higher with a huge move in October. The stock advanced over 25% and gapped up in the process. The gap extended around 2 points and now marks a support area around 32–34 (Figure 1, green box). Note that the stock reached 33 in early November and has been trying to firm in this area over the last two weeks. There is also support around 33 from the rising 50-day moving average.

MSFT returned to this gap with a falling wedge over the last five weeks. The surge above 37 created an overbought condition, and there are two ways to work off this condition: correct or trade sideways. MSFT corrected back to the gap and we should now watch wedge resistance for a breakout. Remember, the wedge is still falling and a break above 34.1 is needed to reverse the five-week decline.

FIGURE 1: MICROSOFT, DAILY. After MSFT led the market higher with a huge move in October, advancing over 25% and gapping up in the process, the gap resultant extended around 2 points and now marks a support area around 32-34 (green box).
Graphic provided by: TeleChart2007.
 
I am also watching the 5-35 MACD oscillator. Normal moving average convergence/divergence (MACD) is calculated with the nine-day exponential moving average (EMA) and 26-day EMA. The shorter five-day EMA and longer 35-day EMA make this version more sensitive than the 9-26 version. This means it will produce more signals — and more whipsaws. The indicator is currently below its signal line (pink) and in negative territory. This means momentum remains bearish. Look for a break above the signal line and into positive territory to turn momentum bullish again.



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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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 12/07/07Rank: 5Comment: The chart analysis goes back to 12/04 yet the article is posted 12/06. Is there a reason 4 this that readersshould b aware of? KE
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