The rally comes even after President Trump retweeted a call for a federal contract ban on Microsoft.
In the prior session, the Nasdaq sank about 5%, while the Dow lost almost 7% on the day. Equities dove after a powerful multi-month rally as fears continue to rise over a second wave of coronavirus.
For its part, Microsoft stock fell 5% on Thursday, closing near the lows of the day. But given that it’s one of the largest stocks in the market — and thus, has one of the largest weightings in the indices — it couldn’t help but get caught up in the selling pressure.
Plus, shares just hit new all-time highs on Wednesday, and with Microsoft closing up 49% from the March lows the stock was ripe for a pullback.
Now investors are trying to figure out how to trade Microsoft should a second wave of coronavirus pan out.
Trading Microsoft Stock
Put simply, this stock has been resilient, riding higher along the 20-day moving average before breaking out over resistance near $186. The move sparked an even higher rally, but now shares face an important test.
When Microsoft stock pulled back on Thursday, it dipped down to this prior breakout level. For now, it’s holding as support, but it’s unclear whether that will remain the case amid a deeper decline in the broader market.
My gut says it won’t and it will be discouraging for short-term bulls to see Microsoft lose the $185 zone. If it does, it puts the 78.6% retracement and 50-day moving average in play between $178 and $180.
If the bulls really are in control — both with Microsoft stock and the overall market — a dip of this magnitude will be a buying opportunity. If they aren’t in control and more selling ensues, it puts the 61.8% retracement in play near $168.
When Microsoft last reported earnings, management talked about its revenue being rather resilient despite the unfortunate operating environment that businesses and the public found themselves in with Covid-19.
That should help prevent a full-blown pullback from developing in Microsoft stock.
On the upside, I want to see if shares can rotate over the current high at $198.52 and climb to the 123.6% extension at $203.22.