Keyword: 200 Day Moving Average

Is a chart line that tracks the average price of the stock for the past 40 weeks. It is less sensitive to short-term fluctuations and it offers a better picture of the stock’s long-term trend. There are many theories concerning the interaction of day-to-day stock price movements and the trend of the 200-day moving average as an aid to predicting the future. We know of only one that has a better-than-chance record. This theory–it might more appropriately be called a rule-of-thumb–is useful primarily in forecasting the course of highly volatile growth stocks. It holds that when the 200-day moving average flattens out after a rise and is penetrated by a stock price decline, it is a major sell signal. Conversely, if the line flattens out after a decline and is penetrated by an advance in the price of shares, it is a major buy signal. Unfortunately, the market is never so accommodating as to provide investors with a fool-proof buy-sell indicator. Like most other indicators, this one works best when the market as a whole is changing direction. At other times it can be misleading. The important point to remember is that when one of these signals appears, it pays to investigate.

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Follow the money

Some of my research involves sentiment indicators, which measure the level of bullish or bearish behavior by two distinct groups of investors.

One group, sometimes referred to as the ‚Äúsmart   Read More