Large-cap technology stocks as a group had a tough going in recent weeks as investors sold them down. This was particularly hurtful for the broader U.S. stock market given the heavy weight this group carries and the overexposure that most investors thus have to this group. In recent trading days, however, some better price action has surfaced in names like Microsoft (NASDAQ:MSFT). In fact, MSFT stock last week bounced off a crucial technical confluence area of support that active investors and traders could lean against for a trade for now.
As I have discussed in this here column for a good part of this year, when investors begin selling large-cap tech stocks, they will do so in basket trades, meaning they will not just sell one or two of those stocks but rather will sell them thematically. This is indeed what has transpired in October and November and led to general weakness in those stocks regardless of how good or bad their business outlook might be.
One name that has held up relatively well throughout this period, however, is MSFT stock. It too saw a drawdown of about 15% from its early October highs to the recent lows, but relatively speaking this was not too bad.
MSFT Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multi-year weekly chart, we see that all this recent pullback as done for the stock is to bring it back to the lower end of an upward sloping channel (purple parallels), which on this chart also happens to coincide with the yellow 50 week simple moving average.
Note how this stock notably overshot the channel in the July-September period and how that led to the inevitable mean-reversion move.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that MSFT stock on Nov. 20 marginally undercut its October lows on an intraday basis but then quickly bounced back. This area of support is made up of horizontal support, the longer-term diagonal support line as well as the red 200-day simple moving average.
The stock then saw nice so-called “follow-through buying” over the past few days, further proving that the area around the $100 mark may indeed be good technical support for the time being.
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Traders and active investors could also look to buy the stock around the $105-$107 area with a next upside profit target at $115 and worstcase stop loss at $102.
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