Investor Spotlight

Simple Moving Average Lines

"We've all heard the saying, 'timing is everything'. This is just as true in the stock market as it is in life. Knowing the optimal time to buy or sell a stock is a valuable skill anyone can and should learn"

By Willian J O'Neil (Founder of Investors Business Daily)

Simple moving average (sma) lines are very simple tools to use for taking a position in a stock but also to exit a position for profit as well as exiting the position to mitigate loss. Institutions account for more than 70% of the trading volume in the stock market. Ultimately it is them that determine what the stock price is going to be. If they decide to enter a stock position, it may take them several weeks to accumulate the entire position. Stocks will show that by having the price of the stock staying close to the faster moving 10 day and 20 day sma. Conversely, if they decide to exit the position, it will show up as high volume of stock trading and the price will begin to get depressed lower. It will show up as the faster 10 day and the 20 day sma heading lower towards the slower moving 50 day sma.

In my blog post on August 18th, I had shared 4 stock positions that were initiated on a "Follow Thru" day of August 14th. They were identified by me as the leading stocks in the leading industries that institutions had already exhibited an interest in. Some of them had gapped up in price during the earnings announcement - $MTH, $PCTY, $SBUX. That is a clear signal that institutions were bidding up the price to acquire their position. $PAYC on the other hand was staying above the faster 20 day sma since end of January. That is a clear foot print left by the institutions that they want to continue to acquire a hefty position in the stock.

Performance of the 4 Stocks

Utilizing the tools of sma, one can start initiating a position when the stock is trading along the faster moving average 10 day and 20 day lines. If the market is in a "Confirmed Uptrend" as identified in the market pulse column of IBD(Investors Business Daily) publication, retail investors should start out a small test position in the leading stocks in the leading sector on a "Follow Thru" day. That is precisely what was done by initiating the 4 stocks positions that I mentioned. Once the stock moves lower down towards the 50 day sma and crosses below that, it is a signal that the institutions are no longer interested in the stock. It's time to exit the stock and cut your losses short. 3 of these stocks crossed the 50 day sma and exited the position at market open the next day. One stock continued to move higher along the faster 10 day and 20 day sma. Second position was initiated on that stock that institution continued to support with their purchases.

Here are the results of the 4 stocks compared to the 3 leading indexes that I monitor:

Stocks ;

$PCTY ... - 5.56%
$PAYC ... - 5.63%
$SBUX ... - 5.97%
$MTH ... +13.39% first position, +8.63% second position initiated on Sept 9th at $64.71

Indexes;

$QQQ ... +2.96%
$DJI ... +3.46%
$SPY ... +3.54%

There were 3 losing positions and 2 winning positions. Cutting the losses short by observing the sma lines helped me gain + 4.86% since August 14th "Follow Thru" day. It outperformed the 3 leading indexes as well.

Mentoring Program

We are entering a traditionally very profitable 4th quarter in the stock market. It will be a volatile month in October. My mentoring schedule is very hectic for the next few months. There are lots of nuances of timing the market utilizing sma as a tool. I have explained some of these concepts in very simple terms in my last 4 blog posts. If you would like to learn the precision methods that I utilize - along with observing the sma lines - I will gladly try to accommodate just a few students in the 4th quarter. It will be on a first come first served basis.

Schedule a FREE 30 minutes of 'Discovery Call' with us and investigate how our program can help you Out Perform the Market like I do.