Microsoft stock is rallying even after the software giant missed earnings estimates. Here are the levels it must clear now.
Shares of Microsoft (MSFT) – Get Microsoft Corporation Report are rallying about 5% on Wednesday.
That may surprise some investors, given that the software giant missed earnings and revenue expectations when it reported after the close on Tuesday. It helps that guidance was strong.
Interestingly, we’re seeing that reaction across the board today.
Alphabet (GOOGL) – Get Alphabet Inc. Report (GOOG) – Get Alphabet Inc. Report missed on top- and bottom-line estimates too, yet its stock is notably higher on the day. Same with Shopify (SHOP) – Get Shopify Inc. Class A Subordinate Report stock, with some wondering whether the latter has bottomed as a result.
When we see stocks rally on bad news — in other words, a bullish reaction to a bearish report — that’s good news for the bulls.
Earlier this week I outlined what Alphabet stock had to do on earnings for bulls to regain and maintain control. So far, it’s on its way.
As for Microsoft, the trade from here is not so clear. Never mind the fact that we still must navigate the Federal Reserve, but Microsoft remains below a key level on the charts.
Even though at the moment it’s holding up better than most tech stocks, that doesn’t mean it’s out of the woods.
Trading Microsoft Stock on Earnings
Daily chart of Microsoft stock.
Chart courtesy of TrendSpider.com
As I look at Microsoft stock, I can’t help but notice the wedge pattern it’s forming. That’s defined by its series of higher lows and lower highs, as it consolidates below a key support zone.
That prior support zone was between $270 and $275, an area that buoyed the stock from January through April.
Once it gave way in March, that was the market’s way of telling traders — not necessarily investors — that it was time to get out of the way. The shares eventually avalanched down to $240.
On the plus side, Microsoft stock found its footing at the monthly VWAP measure and the 50% retracement, as measured from the all-time high down to March 2020 low.
With today’s action the shares are pushing above the 10-day, 21-day and 50-day moving averages. But they are struggling with downtrend resistance and last week’s high.
If it cannot clear these hurdles and then loses its key short- and intermediate-term moving averages, this stock risks a test of wedge support. If it breaks, the $240 area could be back on the table.
On the upside, a push through last week’s high and wedge resistance could put the key $270 to $275 support zone back in play. This zone was resistance in June. If it’s resistance again, bulls will need to see another higher low for the action to be constructive.
On a push through $275, Microsoft stock could rally up to its 10-month moving average, currently just above $280, then potentially rally up to $295.