‘s fiscal second-quarter earnings were pretty good. Shares rose initially after the earnings print—and then dropped. That’s a bad sign for all stocks, though the omen has nothing to do with the fundamentals of Microsoft’s business.
(ticker: MSFT) reported earnings per share of $2.32 on sales of $52.7 billion. Wall Street was looking for $2.29 a share from $53 billion in sales.
Investors initially cheered the bottom-line beat. Shares rose roughly 5% in after-hours trading to about $254. The rally failed, though, and shares were down about 1.6%, at $238.28, in recent trading, though trending up from earlier lows. The
are off 1.1% and 1.4%, respectively.
The Microsoft rally failed right at the stock’s 200-day moving average of about $254 a share.
Piper Sandler technical analyst Craig Johnson calls that a bad sign, and he doesn’t like the the look of the Microsoft stock chart. Moving averages are one tool stock-market technicians use to determine how a stock might trade over the short and medium term.
Microsoft stock is a “consistent [relative strength] underperformer [with] recent insider selling activity,” Johnson wrote in a Wednesday report. “Use the current relief rally to reduce positions.”
Fairlead Strategies founder and technical analyst Katie Stockton doesn’t disagree and sees support for Microsoft shares at around $215. At that level Microsoft stock would have given up roughly 67% of its 2020 tot 2021 gains. That could be a good area to build positions.
That might not be what investors want to hear, but the stock chart just doesn’t look good. What’s more, Microsoft is large enough to impact the market.
“The S&P’s pause yesterday came right before one of its biggest components, [Microsoft], reported numbers…with Microsoft fading after an initial pop, it will have obvious effects on the major indices,” writes market technician and CappThesis founder Frank Cappelleri in a Wednesday research note. “While the percentage of S&P 500 stocks trading above their 200-day moving averages made new highs recently, the percentage of stock greater than 50-day moving averages did not.”
The failure of Microsoft’s rally—and the failure of many stocks to trade above their 50-day moving average—are signs investors should be a little wary of the strong start to 2023.
Market technicians such as Johnson, Cappelleri, and Stockton aren’t concerned with stock fundamentals like sales and earnings, of course. They look at charts to determine investor sentiment and when investors are getting more or less bullish on a particular name or the overall market.
Charts can be a useful tool for any investor. At minimum, they can be a check for anyone’s bullish or bearish views. Right now, they’re saying proceed with caution.
Write to Al Root at email@example.com