Yesterday, we checked out the world’s largest stock, Apple (AAPL).

And today, we’ll switch our attention to the world’s second-largest stock: Microsoft (MSFT).

The software giant enjoyed a massive rally in the first half of the year.

But it peaked in mid-July before rolling over. Even MSFT’s Q4 earnings beat failed to stop its fall.

When we checked in on MSFT last month (red arrow in the chart below), it was trying to rebound after that drop. But that move ultimately failed.

With MSFT trying to rally again, today I want to check its prospects from here…

Rally Reversed

On the left side of the chart below, you can see where MSFT bottomed out in November of last year.

After making a higher low in January, MSFT’s rally got underway…

Microsoft (MSFT)

Source: eSignal

That surge initially started with the relative strength index (RSI) forming a “V” and rallying from oversold territory (lower gray dashed line)…

It then continued to develop with the RSI breaking up through resistance (green line) and tracking in the upper half of its range.

The 10-day moving average (MA, red line) bullishly crossed above the 50-day MA (blue line), confirming MSFT’s rally. And both MAs tracked higher.

By the time MSFT topped out at “A” on July 18 (one day before AAPL peaked), it had risen a massive 67% from its January low.

This time, though, a reversal of momentum (RSI) saw MSFT retrace from its peak.

Although MSFT initially bounced on its earnings beat, that rally lasted all of one day…

MSFT then steadily drifted lower before locking in its short-term low on August 18.

Take another look:

Microsoft (MSFT)

Source: eSignal

When we looked at MSFT on September 6, it was trying to rally. But the RSI (left orange line) was running up against resistance.

Although it was able to break through, it didn’t gain any traction. Instead, the RSI reversed at “B,” sending MSFT down to a lower low.

Adding to the bearish sentiment, you can see that the 50-day MA also rolled over and headed down.

Yet MSFT managed to pick itself up once again. The September low coincided with the RSI again forming a “V” and tracking higher (right orange line) – a repeat of August’s pattern.

So with the RSI breaking into its upper band again, what am I looking for next?

Emerging Up Move

For MSFT’s emerging rally to develop, we’ll need to see the RSI gain a firm footing in its upper band this time.

Without positive momentum, you can’t sustain a rally.

The longer the RSI can remain in its upper band, the longer MSFT’s rally can be.

The other thing I’ll be watching is our MAs. As you can see, MSFT recently bullishly closed above the longer-term 50-day MA.

If the 10-day MA crosses back above the 50-day MA with both MAs tracking higher, that would add further weight to MSFT’s emerging up-move.

The next test for MSFT would be to take out its September 14 high at “B.”

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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