Over the last several months, we have seen a dip in Microsoft (NASDAQ:MSFT), followed by an explosive move to the upside. Last week’s candle was a shooting star that formed a right at the $120 level, which of course would be a negative sign overall. However, it’s obvious that we are in and uptrend so the question then becomes whether or not we should be selling, or should we be on the sidelines looking for value? It’s very possible that the latter of the two situations is about to present itself.
Looking at the chart, if you squint you could see a bullish flag that we have broken out of in the past month. This is a very large bullish flag, and of course a very important technical pattern. Just below that flag we are starting to see the 50-week EMA turning higher, which should be rather supportive. If we do get a break down below the bottom of the shooting star for the week, that should open the door to the $110 level. However, “the trend is your friend until the very end” is something you should keep in your mind. It is because of this that shorting Microsoft is going to be very difficult to do, as the trend can resume itself at any time. Rather than taking that dangerous position, looking for signs of stability around the $110 level looks to be a prudent way to go.
The alternate scenario of course is that we rally right above the top of the shooting star from the previous week, which would be a very bullish and explosive situation, meaning that we are ready to go much higher. The $120 level of course is a certain amount of psychological importance built in two itself, so pay attention to that as well.
All things being equal, it’s very likely that Microsoft is going to be a value play, as it has been a leader for some time, and as a result if you are looking to short stocks, this probably isn’t the place to be.