PreMarket Prep Stock Of The Day: Microsoft Falls Victim To The Tech Rout

Although much of the early damage to this market was done in the speculative high-growth technology sector, many of the mega big-cap technology stocks did not crater.

In its current leg down, the S&P 500 index is having a breakdown in this sector, one by one.

The latest one to have a major breakdown on a technical basis is Microsoft Corporation MSFT, which is the PreMarket Prep Stock of the Day.

Microsoft's All-Time High: While the S&P 500 index made its all-time high in January, Microsoft peaked a few months ahead of it in November at $349.67. Since its peak, the index, at 4,010, is down 16.7%, and the issue is lower by 24% at $266.

Microsoft's Price Action After Q1 Print: Since fundamentals really move stocks in the long run, how an issue reacts to an earnings announcement can be a predictor of future price action.

In the case of Microsoft, the issue posted a solid first-quarter beat after the close on April 26. For the 29th  time in the last 31 quarters, the company posted an earnings beat. On the revenue front, it was a beat for the 28th time in the last 31 quarters.

In the following session, it rallied from $270.22 to $283.22. Over the next six sessions, it put in a triple top at the $291 area, with the latest test being on May 4, when it peaked at $290.88. It ebbed and flowed with the index and ended last week at $274.73.

All About $270: As evidenced by the monthly chart below, $270 has been a major support level for Microsoft over the last three months, with the lows coming in the small range of $270–$271.52. In fact, both the March and April lows were $270 on the nose.

Adding to the importance of this level is that Microsoft's July 2021 low was $269.60, which provided the foundation for its spectacular three-month rally to $349.67.

Monday’s Microsoft Price Action: After a much lower open ($270.06 vs. $274.73), the issue attempted to rally off the open with the index. Microsoft rallied to $272.36 and sharply reversed course. The pace of the decline greatly accelerated once the $270 level was breached.

The stock is down 3.53% at $265.03 ahead of the close. That level coincides with three daily lows at the $265 area from late June of last year.

Microsoft Moving Forward: One of the most basic tenets of technical analysis is that old support makes for new resistance and vice versa. With $270 being a major support level over the last year, the fact that it has breached may be a harbinger of more downside to come.

The longer it takes or fails to reclaim $270, the greater the risk for more downside in the issue.

Based on the monthly charts, the next support level does not come in until Microsoft's June 2020 low of $243.

The importance of this level was discussed before the opening during Monday’s PreMarket Prep Plus.