Stock of the day: Microsoft

Today, we’re coming back to Microsoft, which we previously analysed on the 23^rd of February. Back then the price was on a crucial support – the neckline of the Head and Shoulders pattern –  and we saw two likely scenarios:

“How does one trade this kind of setup? The price defending and bouncing off the neckline would keep the bullish sentiment alive. On the other hand, the price breaking the neckline and closing the day below the red line would bring us a legitimate, long-term sell signal. Now you can see that we are in an absolutely crucial place. The next few sessions, should give us an answer about the near future of Microsoft.”

What actually happened was a third scenario which was a combination of the two we mentioned. What Microsoft had was a false bearish breakout. The price managed to close below the neckline for a day but the next day brought us a very rapid reversal. On a daily chart, the price formed the bullish engulfing pattern (blue), which in addition to a false breakout, can be considered a very powerful buy signal.

And traders are following that. Most recently, Microsoft managed to climb above the mid-term down trendline (black). A combination of those factors gives us a clear positive sentiment.

The buy signal will be cancelled when the price drops below the lowest point of engulfing, but that’s currently not very likely to happen.