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Microsoft Breaks Triangle Support

11/12/08 08:49:07 AM
by Arthur Hill

Microsoft appeared to have a harami at support in late October. The stock did indeed bounce, but the gains failed to hold and a recent triangle support break points to lower prices.

Security:   MSFT
Position:   Sell

Figure 1 shows daily candlesticks over the last four months. Microsoft (MSFT) broke support with a sharp decline in early October and broken support turned into resistance around 25. Trading turned quite choppy in October, but the stock never managed to hold above its support break for more than a day. Thus, the support break held for all intents and purposes.

FIGURE 1: MSFT, DAILY. Microsoft broke support with a sharp decline in early October and broken support turned into resistance around 25.
Graphic provided by: TeleChart2007.
 
A triangle formed over the last five weeks and the stock is breaking triangle support as I write this (see red circle in Figure 1). With the prior move down, the triangle represents a rest or consolidation after the decline. This prior decline gives it a bearish bias that favors a support break and continuation lower. Volume patterns also favor a continuation lower. The on-balance volume (OBV) moved to new lows already. Up volume was below average on the last bounce and down volume was above average on the big decline last week. Higher volume on down days shows more interest in selling than buying.

FIGURE 2: MSFT, WEEKLY. This bearish reversal pattern seen here was confirmed with the support break in June.
Graphic provided by: TeleChart2007.
 
Figure 2 shows weekly prices with a large head & shoulders pattern. This bearish reversal pattern was confirmed with the support break in June. The stock consolidated around the neckline break before heading lower. Based on traditional technical analysis, the downside target is around 17. The height from the neckline to the head is subtracted from the neckline break for a target. MSFT has yet to fulfill this target, but the recent triangle break gives it another chance.



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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