Chart Wars: Between Apple And Microsoft, Which Tech Stock Offers Better Risk-Reward?

Apple, Inc AAPL and Microsoft Corporation MSFT were trading up 1.62% and 1.44% off the open, respectively, early on Monday morning but began to sink slightly by midday following reports that the negotiations between Russian and Ukranian delegations sent to Belarus won’t immediately result in any agreement between the two countries.

The SPDR S&P 500, which was trading up 1.43% off the open at one point, retraced over 1% lower on the news, impacting the tech stocks negatively.

Apple and Microsoft have been struggling recently, with Apple trading down over 10% from its Jan. 4 all-time high of $182.94 and Microsoft declining about 15% since reaching an all-time high of $349.67 on Nov. 22.

The correction to the downside should’ve been expected: stocks don’t go up in a straight line, just as they don’t go down without retracements to the upside.

Between the two stocks, both Apple and Microsoft have signaled the correction may be over by printing massive green candles Thursday, which demonstrated a high level of bullish interest and each stock’s respective support levels. Microsoft may have better risk versus reward levels, as it has developed a clear pattern that could be used as a buy and/or sell signal.

It should be noted that events affecting the general markets, negative or positive reactions to earnings prints and news headlines can quickly invalidate patterns and breakouts. As the saying goes, "the trend is your friend until it isn't," and any trader in a position should have a clear stop set in place and manage their risk versus reward.

See Also: This Industry, Still In Its Infancy, May Be Poised For Serious Growth — Companies That Build Foundational Tech Could Reap Rewards

In The News: On Feb. 23, Jon Najarian said on CNBC's "Fast Money Halftime Report" that he believes traders looking for downside in Apple and Microsoft are likely too late. Najarian noted many big tech stocks have held up fairly well considering the general market downside of late. 

JPMorgan analyst Samik Chatterjee said in a note Monday that Apple has room for more upside due to high demand for the iPhone 13 and SE to drive upside to its estimates for modest revenue growth.

The Apple Chart: Apple entered into a downtrend on Feb. 9 and has since made a consistent series of lower highs and lower lows, with the most recent lower high created on Feb. 16 at $173.34 and the most recent lower low found near the $152 level on Feb. 24.

• On Feb. 24, Apple printed a big bullish Marubozu candlestick and closed the day up 6.66% off the open. The candlestick indicated higher prices would come on Feb. 25, which did happen. On Monday, the stock briefly surpassed Friday’s high-of-day but rejected at the eight-day exponential moving average.
• Bulls want to see Apple print a higher low above the Feb. 24 low-of-day, which will indicate an uptrend is in the cards and then for Apple to regain support at the eight-day EMA, which will give bulls more confidence going forward.
• Apple has resistance above at $167.88 and $171.03 and support below at $162.14 and $157.26.

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The Microsoft Chart: Like Apple, Microsoft has been trading in a downtrend since Feb. 2, making a series of consistent lower highs and lower lows. On Monday, Microsoft came close to printing a higher high above the Feb. 15 high of $300.80 but rejected at the 21-day EMA, which caused the stock to fall back below a descending trendline.

• The descending trendline, which Microsoft has been trading under since Dec. 29, gives bulls who are not already in a position a possible entry point with a stop. If Microsoft is able to close a trading day above the trendline, a larger move to the upside may come. If the stock falls back below the trendline, the area provides a place for traders to place a stop.
• If Microsoft breaks bullishly above the trendline, traders want to see the stock regain support at the 21-day EMA and hold above the level to force the eight-day EMA to cross above the 21-day.
• Microsoft has resistance above at $302.14 and $309.70 and support below at $294.23 and $289.69.