Microsoft Stock Jumps Higher, Negates Downtrend After Activision Deal Revision: A Technical Analysis

Microsoft Corporation MSFT gapped up over 1% to start Tuesday’s trading session after announcing a revision in its deal to buy Activision Blizzard, Inc after a prior proposal was rejected by U.K. regulators.

Although Microsoft sold off from its high-of-day intraday, the pop higher caused the stock to negate its current downtrend, which had begun on July 19.

For a new uptrend to eventually confirm, Microsoft will need to form a higher high over the coming days. Higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.

Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.

Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.

If Microsoft continues to trend lower, however, Tuesday’s reversal could serve as a bear trap and the steep downtrend could continue. If that happens, volatility in the stock market could increase due to Microsoft’s heavy weighting within the S&P 500.

Traders wishing to play the potential volatility in the stock market can use MIAX’s SPIKES Volatility products. The products, which are traded on SPIKES Volatility Index SPIKE, track expected volatility in the SPY over the next 30 days.

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The Microsoft Chart: Microsoft’s most recent lower high within its downtrend was printed at the $325.09 mark on Aug. 15 and the most recent lower low was formed on Friday at $311.55. On Tuesday, Microsoft formed a higher high to negate that trend and popped up above the eight-day exponential moving average, which may give bullish traders more confidence going forward.

• On Tuesday, Microsoft was working to print a bearish Marubozu candlestick, which could indicate lower prices will come on Wednesday. If that happens, bullish traders want to see the stock print a reversal candlestick, such as a doji or hammer candlestick, above $312, which would suggest a new uptrend was on the horizon.
• The move higher on Tuesday was taking place on lower-than-average volume, however, which could signal the uptick is a bull trap. Bearish traders want to see the stock drop to a new low, which could accelerate the downturn and possibly push Microsoft into the lower gap, formed on April 26.
• Microsoft has resistance above at $338.72 and at $349.67 and support below at $323.41 and at $316.