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From The Chart Room
Microsoft May Be Losing Support
Ben Berentson, 07.31.02, 2:00 PM ET

NEW YORK - Microsoft has risen 16% since July 24 to a current $48. Is this rally set to continue? Gary Kaltbaum, who writes a regular column for technical analysis site TradingMarkets.com, doesn't think so--and he has devised a short strategy to take advantage of what he sees as a good trading opportunity.

"I think it's one of the weakest stocks on the market," says Kaltbaum. "It led the market down in that last leg." He points to Microsoft's (nasdaq: MSFT - news - people ) substantial two-day drop--over 15%--on very heavy volume on July 22 and 23. Here, it broke through its long-term support at $50 to drop as low as $42. "But then the stock was just dragged up by the market," he says. The company's brief rally occurred on lower volume, a worrying sign. "As soon as the rally is done, it will go straight back down to $42."

Kaltbaum recommends shorting at $49 or $50 and placing a stop loss at $52, which is right above the 50-day moving average. "This trade has a lot of upside, and if it goes the other way, the most you will lose is 4%. Basically, there's a ton of resistance at $50 and no real support other than at $42. Beyond that, it's a big black hole."

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