Today I want to talk about moving averages.
Moving averages would fall under the heading of 'technical analysis'. But you don't have to be a technician to use them. They're pretty plain and simple and very straight forward.
With the market still in a larger uptrend, there's no shortage of stocks trading above their moving averages. But with the recent pullback, some individual stocks saw their uptrends come to an abrupt halt.
And if the market churns around in this area for any meaningful period of time, you're likely to spot many more individual stocks breaking their trend as well.
So let's take this opportunity to look at some key moving average set-ups and what they mean.
Long-Term and Short-Term Moving Averages
Short-term moving averages help gauge the short term direction of the market while longer-term moving averages take a bigger picture view.
The 200-day moving average would be a longer-term moving average.
In general, if a stock breaks the 200-day moving average on its way down, that's generally thought to be bearish, and the longer-term trend could be turning lower.
Tons of stocks did this in 2008.
The 200-day moving average can also act as support. If a stock comes down, but stops at the major moving average and then starts moving higher from there, it can act as a firm underpinning of support for the stock. Kind of like a moving trendline.
And just like breaking the 200-day moving average on the way down can often times signal a downtrend, an upside breakout thru the 200-day moving average can often times signal the beginning of a new uptrend for a stock.
The 50-day moving average can be quite useful as well. It's more of an intermediate snapshot of the price trend and is more sensitive than the longer-term 200-day.
A rising moving average with the price trading above it is bullish, while a descending moving average with the price trading below it is bearish.
And even shorter term signals can be seen with the 10- and 20-day moving averages.
Moving average crossovers can also be valuable. When the quicker moving average (10-day for example) is above the slower moving average (20-day), this is thought to be bullish. Likewise, when the shorter-term is trading below the longer-term moving average, this is thought to be bearish.
Over the last six weeks, there have been plenty of stocks that fell below their shorter-term moving averages and even their longer-term moving averages.
But there were plenty of stocks moving up, with their uptrends intact. And finding these kinds of stocks is easy to do with a stock screener.
The screen I'm running today looks for stocks trading above their short-term and longer-term moving averages:
- Current Price greater than 10-day moving average (short-term)
- Current Price greater than 20-day moving average (short-term)
- Current Price greater than 50-day moving average (medium-term)
- Current Price greater than 200-day moving average (long-term)
- Zacks Rank equals 1
(Only Strong Buys as ranked by Zacks)
- One Year Projected Growth Rate (F1/F0) greater than 0
(Positive Projected Growth Rates.)
Below are 5 stocks that are all trading above their short-term, medium-term and long-term moving averages (for 03-19-13):
(BWC - Snapshot Report) The Babcock & Wilcox Co.
(COLB - Snapshot Report) Columbia Banking System Inc.
(NATI - Snapshot Report) National Instruments Corp.
(SWFT - Snapshot Report) Swift Transportation Co.
(XL - Analyst Report) XL Group plc
Get the rest of the stocks on this list and start finding stocks above (or below) their moving averages on your own. It's easy to do and you'll be on your way to picking better stocks regardless of whats happening in the market.
Click here for your free trial of the Research Wizard.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks' portfolios and strategies are available at: http://www.zacks.com/performance.