Timing the Market
Utilizing a simple tool
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 21 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.
Last Thursday and Friday, market took a turn for the worse. I fielded a lot of calls from my readers wondering what to make of it. It was their carnal instincts of FEAR, GREED, PRIDE and HOPE being displayed. Suddenly their profits in $TSLA, $NIO, $AAPL, $NVDA, $CRM and other growth stocks were evaporating. They feared that we may be facing a downturn in the market like we experienced from the Feb 19th all time high to the all time lows achieved on March 23rd. We all need to use our carnal instincts to our advantage by shifting our attention from our emotions to the data. It's best to allow data to drive our decisions under such circumstances.
Currently the $SPY(General Market Performance) and the $QQQ (Growth Stock Performance) are hovering right around the 21 day sma. Both these indexes were trading above the 5 day sma for the last 14 sessions. This was unsustainable and was bound to retrace. We had a very similar action taking place in February when both these indexes traded above the 5 day sma for 11 days. Are we going to experience a similar bearish move in the market this time around?
50 day moving average line is one of the most closely watched lines by the institutional investors. Once the stock approaches this line after trading above the 20 day sma, retail investors ought to pay attention to see if the stock gets supported by the institutions at this level. Institutional buyers will come in with huge volume buying to pick up these shares when they are committed to the stock. One of the clues to look for during 'distribution days' is to determine if your stock is being supported or disposed of by the institutions. If your stock is supported and it bounces off the 50 day sma in volume considerably higher than the average daily trading volume, one might want to consider initiating a new position or adding on a second position in the stock. Conversely, if your stock has lost 7% from it's entry or the stock is beginning to approach the 50 day sma, consider scaling down and start raising CASH instead.
It's a good idea always to plan for the worst and hope for the best. Weekend is a good time to look over the stock charts and scrutinize all your positions. Check the performance of your stocks to see if they are being supported by the institutions. Get rid of the ones that are dropping off below the 21 day sma in higher volume than an average trading volume. Compare the performance of your stocks against the $SPY and the $QQQ. As a growth stock investor, you want your stock to outperform these 2 indexes.
Happy Trading!
Amin
Last Thursday and Friday, market took a turn for the worse. I fielded a lot of calls from my readers wondering what to make of it. It was their carnal instincts of FEAR, GREED, PRIDE and HOPE being displayed. Suddenly their profits in $TSLA, $NIO, $AAPL, $NVDA, $CRM and other growth stocks were evaporating. They feared that we may be facing a downturn in the market like we experienced from the Feb 19th all time high to the all time lows achieved on March 23rd. We all need to use our carnal instincts to our advantage by shifting our attention from our emotions to the data. It's best to allow data to drive our decisions under such circumstances.
Currently the $SPY(General Market Performance) and the $QQQ (Growth Stock Performance) are hovering right around the 21 day sma. Both these indexes were trading above the 5 day sma for the last 14 sessions. This was unsustainable and was bound to retrace. We had a very similar action taking place in February when both these indexes traded above the 5 day sma for 11 days. Are we going to experience a similar bearish move in the market this time around?
No one can predict that
50 day moving average line is one of the most closely watched lines by the institutional investors. Once the stock approaches this line after trading above the 20 day sma, retail investors ought to pay attention to see if the stock gets supported by the institutions at this level. Institutional buyers will come in with huge volume buying to pick up these shares when they are committed to the stock. One of the clues to look for during 'distribution days' is to determine if your stock is being supported or disposed of by the institutions. If your stock is supported and it bounces off the 50 day sma in volume considerably higher than the average daily trading volume, one might want to consider initiating a new position or adding on a second position in the stock. Conversely, if your stock has lost 7% from it's entry or the stock is beginning to approach the 50 day sma, consider scaling down and start raising CASH instead.
Would we have a follow thru action in the coming week from the institutions to support these indexes above the 21 day sma or are we going to experience the sharp drop off with the indexes like the one we had in mid February?
Happy Trading!
Amin
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