Focus On Microsoft
Microsoft closed at a new all-time high last Friday and made a new intraday high yesterday before reversing. On the weekly chart, MSFT is in a test of top position. Somewhat worrisome is the contracting volume over the past six months. This is also the first new high in 1999 where the situation exists where a pull back into the old high of $95 5/8 may turn into a signal of a failed breakout on both the weekly and the monthly charts.
For now, the 20-day exponential moving average is around $91.50, so any pull back into the old high will first test this area for support, and until this happens, MSFT is still in an uptrend.
One question we have often been asked is the true value of technical analysis. Why do we make several alternative scenarios? Shouldn't we be able to “predict” market action by projecting the past? We believe the answer is that technical analysis, in principle, is the study of supply and demand, the analysis of the battle between buyers and seller. Viewed in this context, we concentrate our efforts in the present, not the past. However, since people are creatures of habit, it is not difficult to “predict” their behavior under a given set of circumstances, particularly at times of great stress and excitement, such as the test of an old high or an old low, where the battle is extremely intense. When one side capitulates, a strong trend emerges.
For example, those who believe the MSFT is a breakout to the upside can go through the exercise of looking at the chart upside down to perform a reality check. If one would buy the upside down chart, then logical dictates that one would not buy the rightside up chart and vice versa. It is important for those who watch the market to use their imagination, prepare for several possible outcomes, and develop a plan to deal with each situation. This is particularly important for traders, who must ensure that they are in line with their risk and money management rules at all times.
Charts specific to these comments have been posted to
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