The Morning Line

Get Microsoft right, as I continue to remind you, and your forecast for the stock market can’t go far wrong. The tech giant is among the most valuable companies in the world, with extraordinary profit margins tied to an 80% market share in operating systems. The subscription-based revenue model the company has put in place over the last decade is built to withstand a severe economic downturn. And as long as the shares continue to make new highs regularly, it’s safe to assume the stock market will, too.  The trouble is, MSFT hasn’t made a new high in six months, raising the possibility it has entered a bear market. This would have occurred last summer when shares topped at 468 on July 5.  The steep plunge that followed over the next 30 days took the stock down $83, or about 18%. That’s two percentage points shy of a statistical bear market, although investors who have stuck by Microsoft – i.e., every portfolio manager on earth — would find scant consolation in this statistic.

Still, most of them probably have little doubt that new all-time highs await, and they could be right. But a chart stretching back to 2023 suggests persistent distribution, along with ponderous supply that has prevented a run-up to new heights. The chart would take on a rosier look, however, if the stock were to pop just 22 points, or 5%, surpassing an important peak at 450 recorded less than a month ago. MSFT could easily do that in a week, and we should not bet heavily against it.

A second, nettlesome concern for bears who have already placed their bets is the feisty performance of Bitcoin. Like Microsoft, it appeared to have made a very important top a month ago when it hit a record 108,334. The rally came within 0.1% of a compelling Hidden Pivot target, and that’s why I was willing to lay 3-to-2 odds that the top was in.  However, the merciless short-squeeze that powered Friday’s wilding spree was cause for doubt. Although it topped slightly above a technical resistance that I call a ‘voodoo’ number, Bitcoin would need to start the week with a 3349-point dive to suggest bears are about to get a breather.

But they needn’t throw in the towel if Bitcoin explodes to new record highs in the days ahead, especially if MSFT seems reluctant to join the party. That could be considered a bearish divergence, although not the kind you’re likely to find described in a textbook. There are too many other signs that the broad averages have topped, including breadth numbers that have turned ugly. So be on your guard against Bitcoin going it alone for the bull’s last hurrah. That would keep bulls bullish, at least for a while, setting the hook for a new crop of speculators who have never experienced a bear market, let alone a take-no-prisoners killer like the one that’s coming.

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