Microsoft Stock Needs Time to Digest

by Serge Berger | April 30, 2013 7:00 am

Software giant Microsoft (NASDAQ:MSFT[1]) spent the better part of the past decade building what in hindsight might have been a significant bottoming formation on the stock’s chart. Plagued from the commoditization of the PC industry, among other things, the stock just couldn’t find any upward momentum that stuck around for longer than a handful of months at a time before running into price resistance again.

Of course, the charts of the other PC-era darlings — such as Intel (NASDAQ:INTC[2]), or worse, box-makers like Dell (NASDAQ:DELL[3]) — look similar to that of Microsoft.

Over the past couple of weeks, however, MSFT and INTC have rallied strongly in sync. While both stocks are still far from any late-’90s levels (and likely will be for a long time), the recent rally — which comes on an uptick in volume — is nonetheless worth pointing out.

MSFTintc 1024x534 Microsoft Stock Needs Time to Digest[4]

More specifically, on the long-term chart of MSFT, the recent rally has brought the stock into an initial resistance zone, which if overtaken should, over time, move the stock back up to a decade-long resistance point around the $37.50 area.

MSFTmultiyear 1024x616 Microsoft Stock Needs Time to Digest[5]

The steep 13% rally in Microsoft over the past week or so brought the stock right into a 12-month resistance area near $33. While near-term overbought, the stock’s breakaway gap (lower arrow on chart) higher on April 19 following Microsoft’s earnings announcement might have put enough pep in its step for an eventual clearance of the $33 area and a move toward the multiyear resistance around $37.50.

From a time-frame point of view, MSFT’s vertical leap will likely need a few weeks of digestion here to work off the overbought levels. If the stock then however manages to form a tight pattern, it could eventually lead to a key breakout past $33.

MSFTdaily 1024x747 Microsoft Stock Needs Time to Digest[6]

More fundamentally speaking, should Microsoft be able to move past $33 and thus string together more than a trading pop, it begs the question whether something bigger is afoot in the industry that could again spike margins and volume.

Whether that something bigger is a new product or a massive upgrade cycle, we will eventually find out. For now, the way the stock trades around the $33 should give us initial clues.

Serge Berger is the head trader and investment strategist for The Steady Trader[7]. Sign up for his free weekly newsletter here[8].

Endnotes:
  1. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  2. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  3. DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
  4. [Image]: http://investorplace.com/wp-content/uploads/2013/04/MSFTintc.png
  5. [Image]: http://investorplace.com/wp-content/uploads/2013/04/MSFTmultiyear.png
  6. [Image]: http://investorplace.com/wp-content/uploads/2013/04/MSFTdaily.png
  7. The Steady Trader: http://thesteadytrader.com/
  8. free weekly newsletter here: http://forms.aweber.com/form/42/1636996642.htm

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