Microsoft Corporation (NASDAQ:MSFT) was lagging the S&P 500 on Tuesday, trading marginally higher compared to the S&P 500, which was soaring over 2%.
A larger move higher may have been stunted by two analyst downgrades. Citigroup analyst Tyler Radke maintained a Buy rating on Microsoft but lowered the price target from $364 to $330 and Mizuho analyst Gregg Moskowitz maintained a Buy rating but lowered the price target from $350 to $340.
On the contrary, BofA Securities analyst Brad Sills is bullish on Microsoft as the stock readies to print its fourth-quarter earnings after the market close on July 26. Sills maintained a Buy rating on the stock and left the price target unchanged at $345. BofA expects Microsoft to report revenues of $52.3 billion, which would represent about a 6% increase from the last quarter, when the company reported revenues of $49.36 billion.
Although Microsoft was trading about 1.5% higher on Tuesday, the move follows a bearish day on Monday as the stock fell by 2.12%, and the price action appears to be consolidation because Microsoft is trading in an inside bar pattern.
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The Microsoft Chart: An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend. Microsoft’s inside bar pattern leans bullish because the stock was trading mostly higher before forming the pattern, but traders can watch for a break up or down from Monday’s mother bar later on Tuesday or on Wednesday to gauge future direction.
- When Microsoft fell lower on Monday, the stock made the first move in confirming it may now trade in a new uptrend by printing a lower high. The lower high falls at the $253.30 level, and if Microsoft breaks up bullishly from the inside bar pattern, the stock will form a higher high above Monday’s high-of-day, which will confirm the new trend.
- On Tuesday, Microsoft was trading on lower-than-average volume, which validates the inside bar pattern and means that consolidation is taking place. At press time, about 10 million Microsoft shares had exchanged hands, compared to the 10-day average of 24.77 million.
- If Microsoft closes the trading day near its high-of-day price, the stock will print a hammer candlestick on the daily chart, which suggests Microsoft will trade higher on Wednesday and break up from the inside bar pattern. If Microsoft falls lower to close the trading day flat or lower than the opening price, the stock will print a doji or inverted hammerstick, respectively, which would make the inside bar more neutral.
- Microsoft has resistance above at $263.19 and $271.36 and support below at $256.84 and $249.
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