Microsoft Corporation (MSFT) shares fell nearly 4% on Monday amid a wider technology sell-off that included NVIDIA Corporation (NVDA), Alphabet Inc. (GOOG) and other large-cap companies. According to many analysts, the tech sell-off reflects a reallocation of portfolios after the sector's strong rally over the past several months. The PowerShares QQQ Trust (QQQ) has still outperformed the SPDR S&P 500 ETF (SPY) by 10% since January.

In late October, Microsoft reported first quarter revenue that rose 11.9% to $24.54 billion – beating consensus estimates by $980 million – and net income of 84 cents per share beat consensus estimates by 12 cents per share. Shares responded by jumping sharply higher to fresh highs before moving sideways for the next couple of months. After Monday's breakdown, the stock could close the gap from the earnings announcement at $79.00. (See also: Big Investors Go Underweight in FAAMG Stocks: Goldman.)

Technical chart showing the performance of Microsoft Corporation (MSFT) stock

From a technical standpoint, the stock broke down from key support levels to S2 support at $81.08. The relative strength index (RSI) moved off from its highs to 43.50, but the moving average convergence divergence (MACD) extended its bearish downtrend dating back to mid-November. Traders should maintain a bearish bias on the stock given the MACD and neutral RSI, although there could be some near-term consolidation.

Traders should watch for a breakdown from S2 support levels to the 50-day moving average at $79.84 or to close the gap to $79.00. A further breakdown from these levels could lead to a move to prior trendline support between $77.00 and $78.00. If the stock rebounds from these levels, traders could see a move to S1 resistance at $82.59 or the pivot point at $83.82, although the MACD remains bearish. (For more, see: Microsoft to Spend Billions Modernizing Redmond Campus.)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds.

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