Stock Of The Day: If There's One To Watch, It's Microsoft

Sometimes markets are hard to read. There may be no clear leadership. Traders are confused. They don't know what to watch.

But sometimes markets are easy to read. There may be just one or two stocks in the driver's seat. What happens with them can influence the direction of the broader markets. That's why Microsoft Corp MSFT is our stock of the day.

Nvidia gets most of the recent media attention. But at 7.02%, Microsoft is the biggest stock in the S&P 500. This means what happens here could affect other stocks.

As you can see on the chart, Microsoft found support around the $432.50 level. As for now, it is holding. But if the shares break this support, it could bring the rest of the market down with it.

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In March and May, Microsoft hit resistance around $432.50. Each time was followed by a selloff. There is no doubt that many of the traders and investors who sold at this resistance were glad they did.

But then in June, the shares rallied through this resistance and moved higher. When this happened, some of those who sold came to regret their decision to do so.

Some number of them decided to buy their shares back. But they don't want to pay more than the price they sold. They will only buy them at the same price.

So, on Friday when the stock finally returned to the price level that had previously been resistance, they placed buy orders. And there were so many of these remorseful sellers placing these orders that it created support at the price that was resistance.

For now, this support is holding. There is a small rebound underway.

But if the shares trade below this level, traders will say the support has been “broken.” This would illustrate an important supply and demand dynamic.

It will mean that the people who created the support with their buy orders have left the market. Their orders were either canceled or finished.

With this large amount of demand or buy interest out of the way, sellers will need to force the price lower to attract buyers back into the market. This could cause a new downtrend to form.

And if the biggest stock in the entire market heads lower, others may follow.

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