MSFT Reaches Equilibrium within Its Downtrend
Primary Chart: Weekly Chart of MSFT Showing Down Trendline, 200-Week SMA, Key VWAPs and Fibonacci Levels
Microsoft Reaches a State of Equilibrium within Its Downtrend
Equilibrium means "a state of balance." Equilibrium has been reached precisely because MSFT is holding above long-term support, and below its primary downtrend resistance levels. It also has been acting bullishly (the failed breakdown today already discussed). SPX remains in a very tight triangle pattern, and this likely resolves soon (as the apex is approaching rapidly), perhaps after the February 1, 2023 FOMC. MSFT will likely follow suit with whatever direction SPX takes after that key decision. Markets seem to be interpreting every bit of news bullishly at the moment, giving even negative headline a positive spin. This should not be surprising, as markets do whatever they want, and this favors technical analysis. So markets may continue fighting the Fed even if nothing new is stated at the FOMC presser on February 1, 2023.
SquishTrade will briefly summarize key technical points concerning Microsoft Corporation
MSFT
. This firm reported earnings yesterday after the closing bell. Initially, the stock popped vigorously on what appeared to be earnings that were not as bad as feared. But when it gave guidance on its earnings call, the firm fell just as violently. During trade today, however, the forces buoying markets helped MSFT recover back above its uptrend line that runs from early January 2023 lows. This "failed breakdown" is short-term bullish from a technical perspective.
Upside price targets have a lot of obstacles in their path given that the primary-degree downtrend remains intact from all-time highs in late 2021. Thus, any upside price target should be viewed as tenuous and conditional on substantial further progress in major indices (SPX / NDX). Upside price targets include two alternative Fibonacci and measured-move projections as well as major resistance from previous swing highs (blue rectangle) and down trendline resistance. Downside support remains at the 200-week SMA as well as the uptrend line off 2022 lows (dark blue).
Conditional upside price targets
1. If SPX breaks its triangle pattern (approaching its apex now) to the downside, upside price targets should be invalidated. The FOMC presser on February 1, 2023, may be a critical turning point for markets.
2. Provided markets continue pushing higher, with pivot-hopeful stocks leading the way, and provide SPX breaks above its triangle pattern even if only for a few weeks, MSFT can reach $254.67 (which it reached after hours yesterday after the earnings report), and the 200-day SMA also aligns with this level (not shown) as of today. The down TL also lies near this area. If the downtrend line is broken convincingly, $261-$263 can be considered a more aggressive upside target, with the most aggressive target around $270-$273.
3. Downside support remains at the blue uptrend line from 2022 lows. Shorter-term support at the parallel channel from January 6, 2023, lows is also important. This support held despite a volatile whipsaw below it today after earnings were reported.
Importantly, this post does not intend to imply that the Fed will pivot. No one knows when that happens, and the Fed has been stating that it intends to keep rates higher for longer, above 5% for all of this year. But mention of a pause by the Fed, or a discussion of a pause by the voting members, can fuel further rallies especially in technology stocks by participants who perceive this (perhaps incorrectly) as a pivot.
Summary of key technical evidence:
Additional Charts
Supplementary Chart A
Notice how MSFT's price reclaimed the VWAP from the November 2021 low. That seems bullish. But it also failed at the anchored VWAP from the August 2021 high. That seems weak. This is yet additional evidence of the equilibrium between buyers and sellers, perhaps waiting to see if the Fed remains hawkish or if markets rally no matter what the Fed says, because the market has resolutely refusing to believe the Fed's dot plot anyway.
Supplementary Chart B
Notice this logarithmic linear regression channel's upper edge (+2 standard deviations) coincides with the downward trendline from the 2021 peaks as well as with the major area of resistance / supply (the blue rectangle shown).
Concluding Comments
Lastly, SquishTrade will address a few issues relating to the forces that appear to be at work as equities, including MSFT, rise higher despite bad news. It appears that markets are eagerly anticipating a Federal Reserve pivot or pause of some sort in the near future. There is some disconnect between what the Fed has said and what markets believe. Markets have priced in rate cuts later this year in fact, and the Fed's dot plot from the most recent FOMC meeting shows 5.1% as the terminal rate to be held throughout the entirety of 2023 with *no cuts anticipated.* Many believe that this Fed approach will soon change, as reflected by equity prices and Fed Fund futures pricing in rate cuts. Further, FOMO, combined with short covering, and CTAs that trade strictly with momentum in whatever direction, have driven prices near mid-December 2022 highs in the indices.
Disinflationary trends have caused investors to believe that inflation is history. While inflation may have reached its peak, certainty about whether it will return to the Federal Reserve's target of 2% remains elusive. Will sticky inflation keep monetary policy tight for the remainder of the year? Will the market be proved wrong and ultimately decline to new lows because the Fed's view is right and the markets are fighting the Fed? Will the Federal Reserve pause hikes and hold rates higher for longer until more evidence appears that inflation is well on its way to the target?
No one knows the answers to these questions, but they are relevant to what is happening in markets right now. If the market is wrong about inflation quickly returning to the Fed's target, or if the market is wrong about a "soft landing" (earnings and the economy not falling into a major downturn), then markets will quickly and viciously reach new lows. Until these become more apparent, expect prices to remain buoyed in MSFT and other major names.
Thank you for reading, and Happy New Year / Feliz Año Nuevo!
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Microsoft Reaches a State of Equilibrium within Its Downtrend
Equilibrium means "a state of balance." Equilibrium has been reached precisely because MSFT is holding above long-term support, and below its primary downtrend resistance levels. It also has been acting bullishly (the failed breakdown today already discussed). SPX remains in a very tight triangle pattern, and this likely resolves soon (as the apex is approaching rapidly), perhaps after the February 1, 2023 FOMC. MSFT will likely follow suit with whatever direction SPX takes after that key decision. Markets seem to be interpreting every bit of news bullishly at the moment, giving even negative headline a positive spin. This should not be surprising, as markets do whatever they want, and this favors technical analysis. So markets may continue fighting the Fed even if nothing new is stated at the FOMC presser on February 1, 2023.
SquishTrade will briefly summarize key technical points concerning Microsoft Corporation
MSFT
. This firm reported earnings yesterday after the closing bell. Initially, the stock popped vigorously on what appeared to be earnings that were not as bad as feared. But when it gave guidance on its earnings call, the firm fell just as violently. During trade today, however, the forces buoying markets helped MSFT recover back above its uptrend line that runs from early January 2023 lows. This "failed breakdown" is short-term bullish from a technical perspective. Upside price targets have a lot of obstacles in their path given that the primary-degree downtrend remains intact from all-time highs in late 2021. Thus, any upside price target should be viewed as tenuous and conditional on substantial further progress in major indices (SPX / NDX). Upside price targets include two alternative Fibonacci and measured-move projections as well as major resistance from previous swing highs (blue rectangle) and down trendline resistance. Downside support remains at the 200-week SMA as well as the uptrend line off 2022 lows (dark blue).
Conditional upside price targets
1. If SPX breaks its triangle pattern (approaching its apex now) to the downside, upside price targets should be invalidated. The FOMC presser on February 1, 2023, may be a critical turning point for markets.
2. Provided markets continue pushing higher, with pivot-hopeful stocks leading the way, and provide SPX breaks above its triangle pattern even if only for a few weeks, MSFT can reach $254.67 (which it reached after hours yesterday after the earnings report), and the 200-day SMA also aligns with this level (not shown) as of today. The down TL also lies near this area. If the downtrend line is broken convincingly, $261-$263 can be considered a more aggressive upside target, with the most aggressive target around $270-$273.
3. Downside support remains at the blue uptrend line from 2022 lows. Shorter-term support at the parallel channel from January 6, 2023, lows is also important. This support held despite a volatile whipsaw below it today after earnings were reported.
Importantly, this post does not intend to imply that the Fed will pivot. No one knows when that happens, and the Fed has been stating that it intends to keep rates higher for longer, above 5% for all of this year. But mention of a pause by the Fed, or a discussion of a pause by the voting members, can fuel further rallies especially in technology stocks by participants who perceive this (perhaps incorrectly) as a pivot.
Summary of key technical evidence:
- MSFT's weekly chart shows MSFT holding above an upward sloping 200-week SMA after piercing this long-term MA a couple of times.
- But the down TL from MSFT's all-time high remains intact. In fact, MSFT's down TL has not been attacked the way that SPX and NDX's down trendlines have been in recent weeks.
- Key VWAPs from all-time highs and from mid-August 2022 highs remain intact as well. The mid-August 2022 VWAP was resistance today, though barely so. The VWAP from the lows of 2022 was recovered today after a failed breakdown below it after earnings yesterday.
- MSFT has been forming higher lows (and higher highs) since its low in 2022. An uptrend line can be drawn from the October 2022 low to the present price bar.
- MSFT's candle this week has formed a doji—a technical signal of indecision (and equilibrium between buyers and sellers). This has followed large moves up and down in volatile trade after earnings were reported this week.
- MSFT experienced a failed breakdown below recent support and the shorter-term uptrend channel after earnings. This is short-term bullish suggesting the possibility of further upside.
- A major horizontal zone of resistance from 260-270 has rejected price firmly since late August 2022.
- MSFT may follow the direction SPX takes out of its consolidation triangle, where price is rapidly nearing the triangle's apex.
Additional Charts
Supplementary Chart A
Supplementary Chart B
Concluding Comments
Lastly, SquishTrade will address a few issues relating to the forces that appear to be at work as equities, including MSFT, rise higher despite bad news. It appears that markets are eagerly anticipating a Federal Reserve pivot or pause of some sort in the near future. There is some disconnect between what the Fed has said and what markets believe. Markets have priced in rate cuts later this year in fact, and the Fed's dot plot from the most recent FOMC meeting shows 5.1% as the terminal rate to be held throughout the entirety of 2023 with *no cuts anticipated.* Many believe that this Fed approach will soon change, as reflected by equity prices and Fed Fund futures pricing in rate cuts. Further, FOMO, combined with short covering, and CTAs that trade strictly with momentum in whatever direction, have driven prices near mid-December 2022 highs in the indices.
Disinflationary trends have caused investors to believe that inflation is history. While inflation may have reached its peak, certainty about whether it will return to the Federal Reserve's target of 2% remains elusive. Will sticky inflation keep monetary policy tight for the remainder of the year? Will the market be proved wrong and ultimately decline to new lows because the Fed's view is right and the markets are fighting the Fed? Will the Federal Reserve pause hikes and hold rates higher for longer until more evidence appears that inflation is well on its way to the target?
No one knows the answers to these questions, but they are relevant to what is happening in markets right now. If the market is wrong about inflation quickly returning to the Fed's target, or if the market is wrong about a "soft landing" (earnings and the economy not falling into a major downturn), then markets will quickly and viciously reach new lows. Until these become more apparent, expect prices to remain buoyed in MSFT and other major names.
Thank you for reading, and Happy New Year / Feliz Año Nuevo!
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Comment:
Two of the three conditional upside targets have been reached: $254, and $261-$263. Price closed at $240 when this analysis was published.
Provided markets continue pushing higher, with pivot-hopeful stocks leading the way, and provide SPX breaks above its triangle pattern even if only for a few weeks, MSFT can reach $254.67 (which it reached after hours yesterday after the earnings report), and the 200-day SMA also aligns with this level (not shown) as of today. The down TL also lies near this area. If the downtrend line is broken convincingly, $261-$263 can be considered a more aggressive upside target, with the most aggressive target around $270-$273
Provided markets continue pushing higher, with pivot-hopeful stocks leading the way, and provide SPX breaks above its triangle pattern even if only for a few weeks, MSFT can reach $254.67 (which it reached after hours yesterday after the earnings report), and the 200-day SMA also aligns with this level (not shown) as of today. The down TL also lies near this area. If the downtrend line is broken convincingly, $261-$263 can be considered a more aggressive upside target, with the most aggressive target around $270-$273
Trade closed: target reached
Trade closed: target reached:
All price targets have been reached, including the most aggressive ones at $270-$273.
SquishTrade
Two positive (bullish) major divergences appear on RSI. The first is on the daily chart shown below. The second appears on the weekly chart. These set the conditions for further rallying despite the existence of bearish macro and technical factors. It is not uncommon, however, for a third divergence to arise at an even lower low. So that is why the divergence, by itself, does not resolve the uncertainty from the current price action.