Microsoft stock (NASDAQ:MSFT) was down more than 31.5% from its all-time high at the end of this week. This is the worst drop in more than a decade.
The recent Microsoft stock (NASDAQ:MSFT) performance has been a difficult pill to take for Microsoft (MSFT) bulls. Alphabet (GOOGL) (GOOG), Microsoft, and Apple (AAPL) were the relative strength leaders among mega-cap tech companies only a few months ago. They were the best of the lot, withstanding the selling pressure better than their colleagues. Only Apple (AAPL) remains in that club (and is now joined by Tesla (TSLA)).
Microsoft has mainly reported positive quarterly earnings and has just increased its dividend by 10%. So far, it hasn’t mattered, as Microsoft stock (NASDAQ:MSFT) dropped to fresh 52-week lows on Tuesday. Let’s have a peek at the graph.
When Should You Buy Microsoft Stock?
I went back 12 years, all the way to 2010. Microsoft had yet to break out above its dot-com period high at the time, but most of its significant pullbacks were in the 15% to 20% area.
Only two other corrections stand out: the 28% correction in 2010 and the 30.5% correction at the COVID lows in March 2020. There have only been two pullbacks of more than 30%: the COVID correction and the present. Microsoft stock (NASDAQ:MSFT) was down 31.5% from its all-time high at the end of this week. So, in comparison to the previous twelve years, this sort of adjustment is exceptional.
While the retracement has been challenging, the levels are now evident. The stock (NASDAQ:MSFT) is now wobbling around the $240 mark. That is a 50% retracement from the all-time high to the current low in March 2020. It’s also where this year’s low occurred, in June.
If this level holds, I’m interested in watching how Microsoft reacts to a comeback to $250. Above that, the 10-week and 21-week moving averages in the low-to-mid $260s become accessible.
On the downside, a break and close below $240 might lead to a drop to the $215-$225 range.
While this is a broad range, volatility will be considerable, and we should focus on major zones rather than tiny levels. The 200-week moving average, the 61.8% retracement, and the 2021 breakthrough target of around $225 are all contained inside this $10-wide zone.
For what it’s worth, the current range’s 161.8% downside extension (as measured from the “D” leg high to the “C” leg low) comes into play at around $210. While it would reduce Microsoft shares by approximately 40% from their peak, I believe this is where long-term bulls are driven to purchase rather than sell, considering how valuable this firm is.
Featured Image – Megapixl © Mandj98