Microsoft reached $50.00 per share a week ago, but the bulls could not keep the pace up, which led to a decline to $47.85. However, prices found support there and started recovering. In the end of the day Microsoft was trading above $48.50. In order to give a meaning to these figures, we will look at the price action through an Elliott Wave perspective.
According to the Elliott Wave Principle, the direction of a trend is determined by five-wave sequences, called impulses. The chart above provides a good example of one such impulse. As visible, the decline from $50 to below $48 can easily be counted as impulsive. This means, that Microsoft is, at least in the short-term, in a downtrend. The theory also states, that every impulse is followed by a three-wave correction in the opposite direction. In our opinion, the latest recovery is the first part of this wave (2)/B retracement. If this is the correct count, when wave (2)/B ends, we should expect another move to the south in the face of wave (3)/C. Second waves must not travel beyond the start of the first wave. In this case, wave (2)/B should stay beneath the 50 dollar mark.
