Microsoft Just Saw a 'Death Cross' Ahead of Earnings. What That Means

$Microsoft(MSFT)$   has been one of the weaker "Magnificent Seven" stocks over the past year, rising just some 5% over 12 months and trailing the $S&P 500(.SPX)$  , $Alphabet(GOOGL)$  , $NVIDIA(NVDA)$   and $Apple(AAPL)$   during that period. Let's see what its chart and fundamentals say heading into next week's fiscal Q2 earnings.

Microsoft's Fundamental Analysis

MSFT will be one of several Mag-7 stocks to report earnings next week, releasing its numbers on Wednesday after the bell.

Wall Street expects to see $3.86 of GAAP earnings per share on more than $80.25 billion of revenue. That would represent 19.5% year-over-year growth from the $3.23 in GAAP EPS that Microsoft reported in fiscal Q2 2025, as well as roughly 15.3% y/y gains from the year-ago period's $69.6 billion of revenue.

Interestingly, 26 of the 32 sell-side analysts that I know of who cover Microsoft have boosted their earnings estimates since the quarter began – so there's some optimism going into earnings. (Three analysts have cut their forecasts, while three have left their estimates unrevised.)

Microsoft's Technical Analysis

Let's look at MSFT's chart going back almost a year and running through Wednesday afternoon (Jan. 21):

Unfortunately, there's not very much visible here that I see as bullish at all.

We will first see that from June through early November, MSFT developed a double-top pattern of bearish reversal with a $492 apparent downside pivot.

True, the stock broke from that pattern around December and managed to find support at its 200-day Simple Moving Average (or "SMA," marked with a sloping red line). However, it looks like professional money managers pulled their support in early January and the stock fell below the 200-day SMA as well.

Meanwhile, note the unfilled gap that the stock created in early May at around $400 to $420 (marked with an orange circle at the chart's left).

Unfilled gaps don't always fill, but they historically often do. This gap would need Microsoft to tick to $396.66 or lower to fill in – well below MSFT's $451.14 Thursday close.

We also see that Microsoft is facing a so-called "death cross" that just occurred. That's when a stock's 50-day SMA (the blue line) drops below its 200-day SMA (the red line) – considered a bearish signal.

The only saving grace here might be that technical analysts consider a death cross more bearish if the 200-day SMA is declining as it crosses the 50-day SMA. Here, that line was rising when the death cross occurred.

Meanwhile, we will see that Microsoft's Relative Strength Index (the gray line at the chart's top) has moved into technically oversold territory.

And at the chart's bottom, the stock's daily Moving Average Convergence Divergence indicator (or "MACD," denoted by black and gold lines and blue bars) is in a really bearish-looking condition.

The histogram of the 9-day Exponential Moving Average (or "EMA," marked with blue bars) is fairly deep into negative territory. That's a short-term bearish indicator.

Additionally, the stock's 12-day EMA (the black line) is running below its 26-day EMA (the gold line), and both have been stuck in negative territory since early November. That's technically very bearish as well.

An Options Option

Options traders with a relatively bearish stance going into earnings would likely employ a bear put spread in this scenario.

That's where you buy one put and sell another with a lower strike price but the same expiration date. Here's an example:

-- Long one MSFT put with a $435 strike price and a Jan. 30 expiration (i.e., after this week's earnings report). This cost about $5.15 at recent prices.

-- Short one Jan. 30 MSFT $420 put for roughly $2.

Net Debit: $3.15.

This trader is risking the $3.15 net debit to try to bring back up to $15, for a maximum theoretical profit of $11.85.

Option traders looking to offset the initial cost of the trade and willing to own the equity would add a third leg to this trade in the form of a deeply discounted short put with a distant expiration date. This would help offset the $3.15 net debit.

Here's an example:

-- Short one March 20 MSFT put with a $395 strike price (i.e., below the potential gap-fill in the chart above). This would bring in about $3.25 at recent prices.

New Net Credit: $0.10.

Adding this put paid for the bear-put spread in its entirety -- and more. The trader is now receiving a $0.10 net credit, and could potentially still bring back up to $15 on the spread.

However, this trader has also opened themselves up to equity risk at the above put's March 20 expiration date. The person could wind up owning Microsoft stock at a $394.90 net basis at a time when the shares could be trading much lower than the third put's $395 strike price.

Disclaimer: The information provided is NOT financial advice. I am not a financial adviser, accountant or the like. This information is purely from my own due diligence and an expression of my thoughts, my opinions based on my personal experiences, and the way I transact.

@TigerStars  @CaptainTiger  @TigerWire  @Daily_Discussion  @Tiger_chat  @Tiger_comments  @MillionaireTiger