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Technical Update - Microsoft seems to resume down trend after earnings
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
Summary: Microsoft opens lower after earnings and seems to resume downtrend. A down trend that could push Microsoft share price below 200
Microsoft opened 3.4% lower after earnings release yesterday after market but the lower opening has not changed the technical picture much. Microsoft is still in a downtrend and a close below 230.68 is likely to fuel a sell-off to test November lows around 213.43.
RSI is showing negative sentiment and if RSI closes below its rising trendline the indicator is likely to drop below back 40 further adding to the bearish picture.
For Microsoft to reverse the trend short-term a close above 245.75 is needed. If that occurs the upside potential seems limited. 200 daily SMA is declining and will provide resistance. Combined with the medium-term falling trend line it could be a struggle to break key resistance at around 262-264.
RSI is showing negative sentiment and if RSI closes below its rising trendline the indicator is likely to drop below back 40 further adding to the bearish picture.
For Microsoft to reverse the trend short-term a close above 245.75 is needed. If that occurs the upside potential seems limited. 200 daily SMA is declining and will provide resistance. Combined with the medium-term falling trend line it could be a struggle to break key resistance at around 262-264.
Bigger picture. Microsoft is trading in a wide falling channel. After its bounce off 200 weekly SMA it has failed to gain upside traction and seems set to test November lows. There is divergence on RSI that that indicates the downtrend has exhausted but if RSI closes back below 40 that divergence is likely to be cancelled with new lows to follow i.e., a move to strong support at around 196.25 possibly even down to support and 0.786 retracement at around 179 could be seen.
To reverse the medium-term trend a close above 264 is needed.
RSI divergence explained: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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