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Microsoft (MSFT) - Playing the Earnings Breakout Gap

MSFT has been consolidating throughout 2015, since tagging 50 at the end of 2014. After the latest earnings report on Thursday (10/22), It rallied, and shot up on Friday (10/23). EPS was reported at $0.67 beating the $0.58 estimate quite significantly. This is the 5th straight time earnings have beat estimates, but this time, price broke the range it was in during those previous 4 earnings reports. 

MSFT Daily Chart

(click to enlarge)

First of all, note that the prevailing trend coming into the almost year long consolidation was bullish. The break above 50 therefore signals continuation of that trend and thus gives MSFT upside risk above 54. A conventional target projection is to use the broken consolidation range. The range was about 10.00, so a projection of 10.00 above the 50.00 resistance is to 60.00. 

Secondly, the Friday candle opened and closed leaving a gap from Thursday's candle. One way of dealing with a gap like this is to wait for price to pull back and close the gap before going long again. Even without the gap, we can apply the wait-for-a-pullback approach to the bullish breakout from consolidation. In a pullback, we should look for support in the 48-50 area, especially if the RSI comes back to 40-50 area and starts turning back up.