Microsoft Looks Tempting

 | Jul 24, 2013 | 9:00 AM EDT  | Comments
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When I see a huge move in a stock on earnings, rating changes or any other fundamental piece of news, I like to back up and take a look at the bigger picture. In this way, I can see whether the move might provide some sort of technical-trading opportunity -- as well as allow the market to calm down a bit.

But, before we get to a current setup, though, let's take a look at an old one in order give you an idea of how it might work.

In particular, a while back I identified potential support on Lululemon's (LULU) weekly chart. Some of the higher support decisions were violated, but the stock held above one of the stock's symmetry projections, or measured moves -- in other words, 100% projections of prior price swings in that same direction. That hold came at the $59.71 level, and Lululemon did end up putting in a nice low in that area. At this juncture, if the stock continues to rally from that last low, the upside potential is to $88.70.

Lululemon (LULU) -- Weekly
Source: Dynamic Trader

Now let's take a look at a current setup -- in Microsoft (MSFT), shares of which has recently undergone a healthy decline. On this stock's weekly chart, I see two zones that interest me when it comes to potential support levels.

I like the first quite a bit better -- between $29.74 and $31.08 -- as it includes more of my favorite "symmetry" projections. Besides that, this area also includes a 0.618 retracement of a major weekly low-to-high swing, along with a 1.618 extension of another relatively large swing. So far, Microsoft is holding above this zone.

Microsoft (MSFT) -- Weekly
Source: Dynamic Trader

The second zone also includes one 100% projection of a prior weekly decline, along with a couple of price retracements, as illustrated on the chart.

I would consider picking up Microsoft shares against either of these zones. The risk can be defined either below the low end of the zones, or even below the December 2012 lows at $26.26.  In order to fine-tune any entries beyond these parameters, please refer to my guidelines on trade triggers.

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