I often look back to the work of financial pioneer and “father of technical analysis” Charles Dow, whose work in the early 20th century shaped the way generations of investors tried to understand market movements. The Dow Jones Industrial Average works based on the analysis of price trends, defining and tracking trends over time by comparing highs and lows. An initial look at the Microsoft (MSFT) chart may reveal an ongoing uptrend with rising highs and rising lows. While this short-term uptrend is a valid observation, it also means Microsoft may be forming the dreaded “bear flag” pattern that often precedes a major decline. A bear flag pattern occurs when you have an initial downtrend, in this case the price dropped from $470 to $385 from early July to early August this year. We can then see a short-term uptrend channel formed by the August and September highs and lows. September was a good month for MSFT, up about 5% from the end of August. In fact, the August and September swing lows were located right around the 200-day moving average, further strengthening the short-term bullish thesis. Downside Targets While the short-term trend is positive, the risk now is that Microsoft will pull back to confirm a bear flag pattern, suggesting a broader breakdown in the Magnificent 7 name. If MSFT breaks below $410 in the coming weeks, this will complete a bear flag pattern and push the price back below the 200-day moving average. This also suggests a minimum downside target of around $370, which would be the 61.8% retracement of the October 2023 to July 2024 rally phase. From a seasonality perspective, this could allow MSFT to enter the year strong on a typical fourth-quarter rally, given the weakness it typically experiences in September. While charts like Microsoft’s are still in a strong position, they are starting to show signs of weakness commonly seen in previous bearish rotations. One of the benefits of technical analysis is making the “if-then” statements we’ve outlined today, helping investors manage risk while identifying potential opportunities. -David Keller, CMT marketmisbehavior.com Disclosure: (None) All opinions expressed by CNBC Pro contributors are theirs alone and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliates, and may have been endorsed by CNBC Previously broadcast they appeared on television, radio, online or other media. The above is subject to our Terms and Conditions and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not apply to your particular situation. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. Click here to view the complete disclaimer.
Rising Microsoft stock price could form disturbing ‘Bear Flag’ chart pattern | Real Time Headlines
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