Stock Of The Day – Does Classic Pattern In Microsoft Mean A Move Higher?

Shares of Microsoft Corporation MSFT are lower Tuesday. The stock has been consolidating and trading within a range for the past month. A classic ‘rectangle pattern' has formed on the chart.

This pattern could have bullish implications and suggests that the shares may be about to head higher. This is why our team of technical analysts has made it our Stock of the Day.

When a market is heading lower, it is because the bears or sellers overpower the buyers. There are more shares for sale than there are to be bought. This forces the price down.

The opposite is true in an uptrend.

There are more shares to be bought than there are to be sold. As a result, the bulls or buyers overpower the bears or sellers. This moves the stock higher.

Technical analysts look for patterns on a chart that can illustrate the leadership is changing. A ‘rectangle pattern' is one of them.

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If the change takes place over an extended time period, it may appear as a ‘rounded top' or ‘rounded bottom' pattern. If there is a sharp reversal that takes place over a few days, a ‘V bottom' or ‘inverted V top' may appear.

A rectangle pattern is a graphical illustration of a consolidation or a trading range. The power of the bulls and the bears is equal. Neither side is in control.

This price action may indicate that the selling is over and the bulls are about to take control.

Microsoft is also trading at a support level. Over the past year, the shares dropped to this level twice. On each occasion, a large move higher followed.

Stocks tend to rally after they reach support levels. This happens when the investors and traders who created the support with their buy orders get anxious and become concerned that others may outbid them.

These anxious buyers decide to increase the prices they are willing to pay. Other anxious buyers see this and do the same thing.

This can result in a snowball effect that forces the shares higher. The price action may result in Microsoft breaking out of its range and entering into a new rally.

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