The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Also, you must realize that as with all trading strategies, opinions can
change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set ups, and
examples of entry and exit strategies.
Moving Average Crossovers
Moving averages are one of the oldest and most popular technical analysis
tools.
A moving average is the average price of a security at a given time. When
calculating a moving average, you specify the time span to calculate the
average price for X number of periods. For example, 20 periods. These
periods may be 5 minute bars, 15 minute bars, 60 minute or daily bars).
The classic interpretation of a moving average is to use it to observe
changes in prices. Investors typically buy when a security's price rises
above its moving average and sell when the price falls below its moving
average.
The moving average crossover method calculates two moving averages, each
based on a different number of periods of trading data. When the
shorter-term (fewer days) average crosses above the longer-term average
from below, this is a buy signal for tomorrow's open. When the shorter-term
average crosses below the longer-term average from above, this is a sell
signal for tomorrow's open.
The current charts we are using calculate a 5-period and a 20-period
exponential MA of the closing prices on 60 minute bars. If the 5-period MA
crosses above (becomes greater than) the 20-period MA, you would buy the
next bars opening because the system is saying that an uptrend has begun.
You maintain this long position as long as the 5-period MA is greater than
the 20-period MA. When the 5-period MA crosses below the 20-period MA, the
trend is now down and you would liquidate your long position and establish
a new short position on the next bars open.
Let's look at AMAZON.COM, AMZN.
It is all in the chart.
It is always dangerous to trade stocks that are coming out with earnings in
the next few days.
The charts can sometimes help to predict what will happen. I am always
interested to know "who knows what and when did they know it"
Over the past few days, the Internet stocks have been declining. Is this a
clue or an indication of earnings?
On July 13, AMZN broke above a resistance as reflected in the moving
average crossover method.
AMZN had a very nice run moving quickly to 140. Look how momentum was
strong and the stock continued to move up with the spread of the moving
averages increasing.
Momentum slowed on July 15 and 16 and early on the 19 crossed over to a
Sell signal.
I would exit long positions now.
An aggressive trader might consider a Short position in AMZN.
I would place a stop on a Short position at 136.
