Microsoft Stock Drops On Soaring Inflation Data: Why A Bounce Is Likely

Microsoft Corporation MSFT gapped down Wednesday morning and was falling about 2% intraday in sympathy with the S&P 500, which was plunging about 1.3% on data released from the Bureau of Labor and Statistics that showed inflation soared 9.1% year-over-year.

With the consumer price index surging at its fastest pace since 1981, big tech has been feeling the effects as consumers are forced to tighten spending to afford necessities such as groceries and gasoline.

The data may force the Federal Reserve to hike rates by 75 bps this month, accelerating fears the U.S. will be thrown into a recession.

Microsoft is set to print its fourth-quarter financial results on July 26 and traders and investors will be watching anxiously to see how the company guides its earnings for the first quarter. Analysts have been cutting earnings estimates amid signs the economy may be slowing, and on Monday Morgan Stanley analyst Keith Weiss maintained an Overweight rating on Microsoft but lowered the price target from $372 to $354.

From a technical standpoint, Microsoft looks ready to at least bounce up over the coming days, especially if the stock closes near or above Wednesday’s opening price.

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The Microsoft Chart: If Microsoft closes Wednesday’s trading session near its opening price or higher, the stock will print either a doji candlestick or a hammer candlestick, respectively, which could indicate a bounce is in the cards for Thursday. On Tuesday, Microsoft negated its uptrend by falling under the most recent higher low of $252.90, which indicates a downtrend may be in the works, although a lower high will need to print for confirmation.

• The lower prices on Wednesday were occurring on lower-than-average volume, which indicates the stock may be running out of sellers and heading for a bounce. At press time, about 10 million shares of Microsoft had exchanged hands, compared to the 10-day average of 24.45 million.
• Microsoft has two gaps above on its chart, with the closest gap between the range of $293.30 and $296.28. Gaps on charts fill about 90% of the time, which makes it likely Microsoft will rise up to fill the empty trading range in the future, although it could be an extended amount of time before that happens.
• Microsoft has resistance above at $256.84 and $263.19 and support below at $249 and $243.

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