Looking To The Charts To Find Out What's Driving Microsoft's Rally

• Microsoft Corporation MSFT’s stock has surged 15.4 percent since its ‘Black Monday’ sell-off.
• Without significant news pushing the stock higher, technicals are likely playing a significant role in the move.
• Unless the stock breaks above the celing of its trading range at around $49, it has limited upside from current levels.

Microsoft has started off strong again this week, surging more than 2.6 percent in late-day trading on Monday. Without any major news, Microsoft shareholders now find themselves up 7.9 percent in the past five trading days and 15.4 percent since the “Black Monday” crash on August 24.

While a Bank of America upgrade from Underperform to Neutral might partially explain why Microsoft recently found a bottom, Benzinga turned to the charts to see if there is a technical explanation for the aggressive bounce in share price.

Trading channels
Since the beginning of 2013, Microsoft’s share price has climbed about 69 percent. From late 2012 to early 2015, the stock was trading inside a tight ascending channel, identified by the green lines in the chart below.


However, since breaking out of that channel in early 2015, Microsoft has been range-bound within a horizontal channel, indicated by the blue lines in the chart. The ceiling of this range is around $49, and the floor of this channel is in the $40 range.

Technical bounce
The boundaries of this channel have both been tested multiple times. Resistance at around $49 held twice: once at $48.74 in November 2014 and once again at $48.90 in April of 2015.

The stock has found support near $40 no less than six times since mid-2014, the most recent of which came when the stock hit $39.72 during the Black Monday selloff. Once it reached that level, it bounced hard back to the $46.67 level at which it trades today.

What now?
If Microsoft continues to trade within the blue channel, it likely has limited upside of only about 5.0 percent from its current price. However, a significant breakout above $49 in coming weeks could mean the initiation of a new uptrend, one that would certainly have technical analysts excited about the stock.

Disclosure: the author has no position in the stocks mentioned.