Microsoft’s shares are on the rise, driven by several positive developments. The company enhanced its AI investment profile through an extended partnership with OpenAI, focusing on ChatGPT and Azure.
Microsoft resolved regulatory challenges with the European Commission concerning Teams, opting to offer Office 365 without it, thereby easing antitrust pressure. Alongside, a MoU with OpenAI was signed, anticipating both to hold around 30% stakes as OpenAI pivots to a for-profit model. These actions increased confidence.
Shares have increased by $11.06 or 2.21%, reaching $512.03. Microsoft’s stock price surpassed the 100-hour moving average of $503.49, now testing the 200-hour moving average at $512.27. Today’s high of $512.45 is just above this key resistance.
A sustained break above this moving average suggests additional upward momentum, targeting a swing level of $518.29. This level had halted rallies on July 25 and 29 before a surge due to earnings news. Microsoft set an all-time high at $555.23 on earnings day but later decreased by 11.2% to $492.37 last Friday. Recent moves show increased buying interest at $518.29, implying its continued importance.
With Microsoft now testing its key 200-hour moving average at $512.27, we see this as a critical decision point. The positive news flow around OpenAI and the EU settlement provides a strong tailwind for a potential breakout. We should consider positioning for a move higher by looking at call options expiring in October 2025 with strike prices above the next resistance of $518.29.
This bullish sentiment is supported by broader market activity, as the Nasdaq 100 has gained over 1.5% today, recovering from last week’s lows. We are also seeing a significant increase in bullish options flow, with call volume for the October $525 strike running at nearly three times its daily average. This indicates that institutional traders are betting on continued upside in the near term.
However, we must acknowledge that the stock’s recent 11.2% swing has pushed implied volatility up to around 28%, which is in the upper range for the year. This makes selling premium an attractive strategy, such as using a bull put spread with a short strike safely below the recent low of $492.37. This approach would benefit from both the price moving up and volatility contracting as the stock stabilizes.
We remember a similar technical setup in late 2024, when a post-earnings pullback was quickly erased following positive developments in the company’s AI division. A decisive close above the 200-hour moving average would confirm that pattern is repeating. If the price fails to hold this level, it could signal a return trip to the 100-hour moving average near $503.
The Federal Reserve’s interest rate decision scheduled for next week also adds a layer of macro risk that could impact the entire tech sector. A hawkish stance could easily stall this current rally, regardless of Microsoft’s strong fundamentals. Therefore, we should keep our initial position sizes modest until we have a confirmed breakout and more clarity from the Fed.
