I often refer back to the work of financial pioneer and "Father of Technical Analysis" Charles Dow, whose work in the early 20th century shaped how generations of investors have tried to make sense of market movements. The foundation of Dow's work was based on the analysis of price trends, comparing swing highs and swing lows to define and track the trends over time. An initial look at the chart of Microsoft (MSFT) may suggest a consistent uptrend of higher highs and higher lows.
And while this short-term uptrend is a valid observation, this also means Microsoft may be forming the dreaded "bear flag" pattern, which often precedes a major downdraft. A bear flag pattern occurs when you have an initial downtrend, in this case, the drop from $470 to $385 from early July to early August of this year. We can then see a short-term uptrend channel formed by the highs and lows in August and September.
September has been a decent month for MSFT, having gained about 5% from the end of August. In fact, the August and September swing lows are right around the 200-day moving average, adding further conviction to a short-term bullish thesis. Downside target While the short-term trend is positive, the risk now is that Microsoft would swing back lower to confirm a bear flag pattern, indicating a broader breakdown in this Magnificent 7 name.
If MSFT would drop below $410 in the coming weeks, that would complete the bear flag pattern, and would also push the price back below the 200-day moving .