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Advanced Technical Analysis - MSFT

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Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

Summary:


We are updating our June 22nd Microsoft (MSFT:NASD) technical note based on the evolution of the price pattern. At the time we stated that "the $30 level should be critical resistance. And though a move over $30 would be a surprise (owing to the most likely wave count), a move past $31.50 would be ever more improbable (owing to the second most likely wave count)."


The $29.65 peak on July 21st (the "dividend peak") has since seen prices move decisively down from that point and could very likely in the next 1-2 weeks produce a "5" wave movement off the July 21st peak we have been looking for. Such a "5" wave move down would then confirm the bearish technical analysis we formulated two months ago on this stock and argue for a continued decisive move lower. You will recall that our previous note suggested that the entire move up from the December 2000 lows has been corrective in nature, suggesting that, eventually, it would be given back in its entirety. We opined at the time that a massive corrective triangle pattern had unfolded and that a final E wave could find its apotheosis in the $29-30 area and then "re-start" its bear market down trend from the 1999 peak to the 2000 low; a move that took 66.4% out of MSFT in a one year span.

If our long term educational analysis is correct, that bear market should now be resuming, a compelling case for which rests on MSFT tracing out a 5 wave pattern off the July 21st 2004 peak. Looking at the hourly chart, the move down has all the configuration of a developing 5 waves: with waves 1 down, 2 up, 3 down, and currently 4 up in place. One more new low in MSFT beneath the 8/12 $26.88 lows would produce such a "5" down and provide a high confidence bearish technical analysis on this stock for the foreseeable future, with possible initial levels moving in the 22-23 area with long term levels well below $20, in our opinion (not advice).

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No positions in stocks mentioned.

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