After Tuesday's closing bell, software giant Microsoft (MSFT) reported earnings and revenue for the quarter ended in December. Microsoft initially traded higher after the report, but the company's forward guidance proved to be a disappointment.
In a post-earnings conference call, Microsoft CFO Amy Hood indicated that a slowdown in business spending that began in December would continue into the current quarter. Revenue increased by just 2%, the slowest quarterly growth for Microsoft in six years.
What does the future hold for Microsoft? Let's go to the charts to find out, starting with the long-term weekly chart.
In this time frame, the overall downtrend, and the scope of the rally that preceded it, is clear. The lack of major support levels near the current price is a concern. Since the beginning of October, volume has been noticeably lighter on bullish green candles and heavier on bearish red candles (shaded yellow).
Charts via TradeStation
But Microsoft isn't alone. The charts of key stocks like Amazon (AMZN) and Alphabet (GOOGL) , and major indexes like the S&P 500 and the Nasdaq Composite, have similar characteristics. This tells us that Microsoft's negative issues aren't company specific.
Zooming in on the daily chart, Wednesday's big story was the speed with which Microsoft shook off the bad news (shaded yellow). The stock was the talk of the market, rebounding from a steep opening drop to close lower by just 0.59%.
We can't ignore that Microsoft is still trapped beneath a trendline that has capped the stock for a year (black dotted line). Microsoft also remains below its 200-day moving average (red), which closely matches that trendline. These obstacles may hold the stock down for the time being.
However, Wednesday's bullish price action tells us that news of Microsoft's slowdown didn't come as a surprise. It's been telegraphed by the company itself, when it announced the layoffs of 10,000 employees earlier this month, as well as by its peers in the tech industry.
What's true for Microsoft may be true for the overall market, as well. Investors are probably looking at next week's earnings reports by Apple (AAPL) , Alphabet, and Amazon with bit less trepidation now.
Microsoft has been a pillar of strength, providing investors with double-digit returns in nine of the past 10 years. Although the stock declined 28.69% in 2022, it still managed to outperform the tech-heavy Nasdaq Composite, which fell 33.10% last year.
Wednesday's price action indicates institutional investors are looking past Microsoft's present situation, and into the future. That's good news for shareholders, and great news for the market as a whole.