Microsoft Bulls Might Want to Hedge Ahead of Big Announcement
There's reason for caution around the tech giant as shares have struggled post-earnings this year.
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Earnings season paired with October might be scarier than any Halloween costume.
September and October are well-known for their volatility, even if it is self-inflicted at this point. Regardless, given the major moves we’ve seen in large caps and the tech market, I have heard subtle rumblings that expectations may be slightly unrealistic this quarter.
We already had ASML Holding's ASML results hit the semiconductors hard. Fortunately, the sector has been so strong that many names have shaken off the initial selling, and a strong report from Taiwan Semiconductor TSM on Thursday should mean more to the market than ASML’s disappointment. Buyers rewarded TSM with a near-10% pop.
Although Microsoft MSFT is not a semiconductor company, it is one of the most influential companies in any market. The Redmond, Washington-based company will report earnings after the bell on October 30. From a technical perspective, bulls may have some worries heading into the report.
Prices have enjoyed a series of higher lows since August, and that’s generally a bullish sign; however, a troublesome pattern has developed over the past six weeks. After a big bounce in September, Microsoft retraced to support. The subsequent two-week “bounce” has been tepid and tight. This has created a handle to go with the big looping cup formed over the prior month’s action.
This has created a bearish cup-and-handle pattern. One might counter that cup-and-handle patterns are continuation patterns, and Microsoft has been heading higher over the past two months. I understand and acknowledge that argument, but I would counter Microsoft, which is well below its summer highs. It is difficult to state that price action has been bullish in the second half of 2024.
The good news for bulls is that a close over $425 will break the bearish pattern. Thursday's close hit above the 10-day and 21-day exponential moving averages (EMAs). Unfortunately, a break below $410 could spell trouble. That paints a picture of a drop below the August lows.
Shares have struggled post-earnings this year. Just something to keep in mind if you are long Microsoft heading into earnings. The use of a hedge to get through the announcement might not be the worst idea in the world.
At the time of publication, Byrne had no positions in any securities mentioned.
