Microsoft stock tests critical support near $423 after steep pullback

Microsoft is sitting right on a pressure point after a sharp selloff dragged the stock down into the low $420s.

Price dropped fast after earnings and erased the recent bounce that pushed shares back toward the 200 day moving average.Traders see that line as a basic health check.Above it, stocks usually breathe easy.

Testing it raises stress. Below it, things often get ugly. Right now, the stock is stuck in that danger zone with little room for error.

Ahead of earnings, Microsoft had already done the hard part by climbing back to the 200 day level. That rally did not come out of nowhere. Warnings were clear on the charts and in the data. A death cross showed up two weeks earlier.

That signal comes late, but it usually confirms a change in direction.Price also printed a clean double top and a rounding top.

Those patterns pointed to exhaustion. The bounce into the moving average was a relief run, not a fresh breakout, and it lined the stock up for the drop that followed.

Shares fall through $450 and stall near a key support band

The selloff started with a gap below the first support around $450. From there, price slid straight into the $423 to $425 area.

That zone matters for several reasons. It lines up with the upside gap and prior low from the April 30 earnings reaction.

This is the first time price has come back to that level, which makes it a clean test. Buyers often show up on a first retest, especially when the drop shakes out weak positions.

The same price area also matches a key Fibonacci retracement. Traders use those levels to spot pauses during pullbacks. For now, the level is holding. The selling pressure was heavy, but it already cleared out a lot of short term risk.

Many traders are watching this area for a short leash trade. If the level holds, price could rebound toward $450.

If it breaks, the chart opens the door to a fast slide under $400. Stops stay tight here. If price breaks and later gets back above $425, momentum traders usually step back in.

Analyst tone is also shifting. Downgrades are expected over the next few days. Even so, 71 analysts still rate the stock a buy, and the average target sits at $611, which is about 43 percent above current prices.

Zooming out changes the view but not the risk. On a five year weekly chart, Microsoft is testing a level that sits right inside the longer term uptrend.

Fibonacci levels on that time frame line up with the peak to trough run from the 2022 lows to the recent highs. Holding this area keeps that trend alive. Losing it puts the next major level just below $400 back on the table.

For long term holders, this is the cleanest risk setup the stock has offered in years. Some investors are adding small amounts here and leaving room to add more if price dips lower. The RSI is moving closer to oversold territory. In past cycles, that zone has lined up with longer term opportunities for Microsoft, especially after fast drops like this one.

Earnings also kept the AI theme front and center. CEO Satya Nadella said the company is still in the early stages of adoption. “We are pushing the frontier across our entire AI stack to drive new value for our customers and partners,” Satya said.

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.