AI chipmaker Nvidia’s massive Q4 earnings beat last month garnered plenty of headlines. That sent its stock price soaring.

But it’s not the only member of Magnificent 7 that has been enjoying a strong ride.

The U.S.’s largest stock (by market capitalization) is Microsoft (MSFT). It rallied 15% since early this year, as of its February high.

And it is up almost 37% since the tech rally kicked off in October last year.

Yet after hitting that peak, MSFT’s momentum began to wane.

Now we’re seeing more positive signals. So let’s see where MSFT could be headed next…

Testing Support

MSFT’s chart below displays three main parts.

The rally from October 2022 to July last year shifted to a retracement from July through September.

Then the current rally began in October 2023:

Microsoft (MSFT)

Source: eSignal

These three major phases also appear in the action of our two Moving Averages (MAs).

The 10-day MA (red line) rose above the 50-day MA (blue line) during the first rally. It crossed beneath it when MSFT retraced.

Then the 10-day MA once again crossed above the 50-day MA (with both MAs tracking higher) as MSFT rallied again in October.

Also, notice that the Relative Strength Index (RSI) tracked in its upper band (above the green line) when MSFT was rallying both times.

However, I want to concentrate on the action of the RSI in the current leg of MSFT’s rally today…

When MSFT resumed its rally in October, that coincided with the RSI breaking through resistance (green line) and gaining traction in its upper band.

As the chart shows, the RSI tested this support level multiple times throughout October, but that level ultimately held.

The same thing happened when MSFT temporarily consolidated within this current up leg in December and early this year.

Take another look:

Microsoft (MSFT)

Source: eSignal

After a very brief dip in early January, the RSI rallied again. That sent MSFT up to its February high.

Then MSFT’s rally retraced when the RSI reversed from overbought territory (upper grey dashed line).

And now the RSI is again testing support (and holding). So MSFT is regaining momentum. The RSI is bullishly making higher lows (red line).

So what should we look for next?

Looking for Confirmation

The key thing that will keep driving MSFT’s rally is momentum…

If the RSI can remain in its upper band and keep rallying higher, that will add great strength to MSFT’s current up move.

(As always, though, we need to be aware of a potential reversal if the RSI inverts from overbought territory.)

Additionally, if the 10-day MA continues to track above the 50-day MA, with both trending higher, that would add further weight to the broad uptrend.

And I’ll be watching the action of the MACD too this week.

As you can see, after tracking lower, the blue MACD line and the orange Signal line have closed back in on each other.

If the MACD line crosses back above the Signal line and both rise, that would add further confirmation of MSFT’s rally.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict