Using Moving Averages

You can make money in individual stocks no matter what the market is doing.

But it’s important in these times to look at some key measurements. One of these measures is the moving average. Short-term moving averages help gauge the short-term direction of the market while longer-moving averages take a bigger picture view.

For example: 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 reversing.

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.

Looking at 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.

More shorter-term signals can be seen with the 10- and 20-day moving averages.

Moving average crossovers can also be valuable too. When the quicker moving average (50 day for example) is above the slower moving average (200 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.

Using a screener can be helpful in finding stocks that meet this criteria.

Of course, moving averages alone don’t tell the whole story. But a company with solid fundamentals while also trading above these momentum indicators can help you find stocks bucking the downtrend and resilient winners.

The screen that I’m running today looks for stocks trading above their short term (10 and 20 day), intermediate term (50 day) and long term (200 day) moving averages.

I’m also demanding that their current quarter earnings estimates have been raised within the last four weeks (or at the very least, not lowered), that their average broker rating has been upgraded (or at the very least, not downgraded), and that they have a Zacks #2 Rank or Zacks #1 Rank (Buy or Strong Buy).

Here are three great-looking stocks that came through this screen (for Tuesday, 4/8/08):

IMCL Imclone Systems, Inc.
OLN - Snapshot Report Olin Corp.
RIO Companhia Vale (Rio Vale Do)

With the Research Wizard it’s easy to screen for winning stocks like these, even in tough markets. And once the stocks are displayed, you can scroll through each stock chart with a click of the mouse and see where the stocks are in relation to their different moving averages.

(Screenshot of Chart Window in the Research Wizard. Use the up and down arrows to scroll thru the list of the screened stock’s charts.)

Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how to improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today!

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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.