Microsoft had a robust first fiscal quarter despite supply shortages that stymied its operations. This is likely to help the price of the Nasdaq, the biggest composite index of U.S. tech stocks, continue recovering from a recent slump. Have a look at our detailed analysis of the index to get a better sense of the broader market sentiment.
The technology corporation's earnings report beat Wall Street's forecasts by a wide margin, driving the share price higher during after-hours trading yesterday. Microsoft's robust earnings data for the three months leading to September came a day after Facebook's overall positive report.
Heightened investors' enthusiasm would likely help Microsoft's share price consolidate above the psychologically significant threshold at 300.00 in the near term. As shown on the daily chart above, the price action recently broke out above the major resistance-turned-support level there, which would likely be followed by the continuation of the underlying rally.
Nevertheless, traders should not underestimate the likelihood of a potential dropdown to 300.00 before the rally can continue advancing higher. This is owing to the massive amounts of adverse volatility that tend to rise up around such psychological levels.
Before the breakout occurred, the price action had even established a bearish correction in the form of a 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.
Presently, the MACD indicator signals peaking bullish momentum. This is underpinned by the declining histogram and the bearish crossover between the two EMAs of the indicator. This substantiates the expectations for a breakdown to 300.00, as this threshold is about to converge with the 50-day MA (in green) and 100-day MA (in blue).
Bulls can potentially take advantage of this by implementing trend continuation trading strategies.
Microsoft posted earnings per share of $2.27, the highest on record, vs $2.07 expected. Revenue was reported at $45.32 billion vs $43.97 billion expected. This means that revenue grew by 22 per cent over last year.
Satya Nadella, chairman and chief executive officer of Microsoft, commented on the earnings report by stating that:
"Digital technology is a deflationary force in an inflationary economy. Businesses – small and large – can improve productivity and the affordability of their products and services by building tech intensity. The Microsoft Cloud delivers the end-to-end platforms and tools organizations need to navigate this time of transition and change.”