After a week of market weakness, Jerome Powell’s Jackson Hole speech on Friday was enough to shake things up. Hints that the Fed may begin cutting rates as early as September sent stocks rallying, with major indexes up nearly 2% on the day.
Rate cuts are generally good news for growth sectors, and technology is often at the front of that line. Most of the “Magnificent Seven” stocks rallied on Powell’s remarks, but interestingly, Microsoft (MSFT) hasn’t caught as much attention as some of its peers. To me, that makes it worth a closer look.
On the charts, Microsoft has been moving lower, but it’s now stabilizing near its lower Bollinger Band. Traders often watch these bands to spot when a stock may be stretched to the downside. In many cases, prices tag the lower band, then bounce back toward the middle of the range — a pattern sometimes referred to as a “garden-variety” pullback. That’s exactly the kind of setup we’re seeing now.
The timing here is also important. Nvidia reports earnings this Wednesday, and history shows that a strong NVDA report tends to lift the entire technology sector — Microsoft included. If Nvidia comes through, it could provide the spark Microsoft needs to turn higher.
For confirmation, I’m watching two indicators:
- RSI (Relative Strength Index): Microsoft’s RSI is still trending lower, so I’d like to see it start curling higher before getting too aggressive. A rising RSI would suggest momentum is shifting.
- MACD (5,13,5): This is a faster version of the standard MACD, designed to give earlier signals. Right now, the blue MACD line is close to crossing above the yellow signal line. If that happens — or even if the histogram turns positive — it would strengthen the case for a rebound.
The Trade Setup
For those looking to play this potential bounce with defined risk, here’s a structured options trade idea:
- Buy: $500 call (September 19 expiry)
- Sell: $505 call (September 19 expiry)
- Cost (debit): Around $250 per spread
- Potential Profit: $250 per spread (100% return if MSFT closes at or above $505 at expiration)
- Risk: Limited to the $250 cost per spread
This is known as a bull call spread. It’s a straightforward way to take a bullish stance while keeping the risk capped. The maximum gain and maximum loss are both known upfront, which makes this approach attractive in a choppy market.
For investors who prefer owning shares outright, the idea is the same: Microsoft is in a zone where technicals and catalysts could align for a move higher. The options trade simply defines the risk more tightly.
