Can Trendline Support Help Microsoft Corporation and Alphabet Inc Recover?

Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOGL) have each pulled back to the historically significant 200-day moving average

by Josh Selway

Published on Apr 28, 2016 at 3:34 PM

Last week saw tech giants Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOGL) both sell-off on disappointing quarterly earnings reports. The question now is can these tech stocks make a quick comeback, or will they continue to struggle on the charts? Let's take a look at the technical and sentiment backdrops on MSFT and GOOGL to see what may be ahead for the stocks. 

MSFT dropped 7.2% in the session subsequent to reporting earnings, and has continued to fall -- losing another 2.5% today to trade at $49.67. The stock is now sitting right above its year-over-year breakeven point at $49.06, and area that contained the stock's pullbacks in January and February.

What's more, MSFT is now testing its historically significant 200-day moving average. In the last three times the stock has puled back to this trendline, the shares have gone on to average a 21-day gain of 2.1%, and have been positive two-thirds of the time.

All the while, options traders have remained mostly upbeat. MSFT's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.99, meaning almost two calls have been bought to open for every put during the past two weeks. 

Not only have options bulls been active, but short sellers have been retreating. Specifically, short interest on MSFT fell by 12% during the two most recent reporting periods, and short interest now accounts for less than 1% of the stock's available float.

Turning to GOOGL, it's also adding to its post-earnings decline, falling 2.1% today to $706.15. However, unlike MSFT, GOOGL's 12-month chart remains impressive, as it boasts a year-over-year lead of roughly 26%. The stock's recent pullback has brought its 200-day moving average into play, as well. In the two other previous signals, GOOGL has both times, and has averaged a 21-day gain of 7.9%. 

While call buying has been more popular than put buying on an absolute basis in recent weeks, options bears have still been more active than usual. This is according to GOOGL's 10-day put/call volume ratio of 0.75 at the ISE, CBOE, and PHLX, which tops nearly three-fourths of all other readings from the past year. 

GOOGL short sellers have also been covering their bearish bets recently, with short interest dropping by over 11% in the last two reporting periods. What's more, Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOGL) sport 14-day Relative Strength Indexes (RSI) of 33 and 34, respectively, putting them on the brink of oversold territory. 

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