As all Microsoft employees know, in April Microsoft shares gapped down 10% in one day. The preceded to sell of another few dollars and it caught me off-guard -- how does a large-cap like Microsoft experience so much volatility?
This past Friday (August 18, 2006) Microsoft gapped up over 4% to close at 25.79. I interpret this as a very bullish formation. At first I couldn't figure out why it would move up so much, there were no articles on Yahoo Finance or Google Finance. I later found it in Investor's Business Daily and then on Moneycentral (incidentally, I usually use Yahoo Finance for my stock quotes but Moneycentral is better for research). Microsoft is doing a shares buyback and that is what sparked the rally.
On the other hand, I had been observing a steady uptrend in Microsoft since mid-June. I had been concerned that Microsoft would not be able to get past the gap that it experienced in April because gaps often act as resistance (or support) for stocks. However, on Friday, not only did Microsoft gap up and reclaim the gap, it opened above the gap and reclaimed its 200 day moving average. These are all positive signs, in my opinion. Share buyback announcements are also positive signs, in most cases. I had been contemplating selling my shares but now I think I may hold onto them.
When the Federal Reserve decided to pause raising rates last week, I had predicted that Microsoft shares, then trading around 24.30, would hit 25. I was puzzled when after the Fed announcement the market did not move up, and neither did Microsoft. I was further worried when Microsoft started wedging upwards. For the time being, at least from a technical standpoint, my fears have been allayed from the positive action in the share price. I have no idea how high it can go now, but for the time being my technical analysis seems to have worked the way it is supposed to work.