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.

Combining our indicators for confirmation

Two of my favorites trading indicators are Moving Average Crossovers and MACD. When these two indicators in sync, trading signals tend to be more reliable.

Today, January 4, 2000, we have two combining indicators now signaling an exit.

Moving Averages and Moving Average Crossovers

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 period) average crosses above the longer-term average from below, this is a buy signal. When the shorter-term average crosses below the longer-term average from above, this is a sell signal.

Moving averages are used to smooth prices, dampening the distractions of short price movement so that the underlying trend is clearer. Moving averages always lag the market and, therefore, will never buy market bottoms or sell market tops. Like any other trend-following system, the moving average crossover will perform best when markets are trending because it automatically places the trader on the right side of every extended move. When markets are moving sideways, however, the lack of extended moves will cause losses.

MACD "Moving Average Convergence/Divergence"

The MACD is a trend following momentum indicator that shows the relationship between three moving averages of prices.

This method can be used for any time frame. It could be 5 minute bars, 15 minutes bars or daily bars. Many traders will also trade in multiple time frames using a longer time frame for trend, and the shorter period for entry and exit.

The MACD is the difference between a 26-period and 12-period exponential moving average. A 9 period exponential moving average, called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities. On the charts below, the MACD line is the green colored line, and the trailing, slower moving line is the signal line. Some technical analysis programs will show the MACD as a histogram bar.

There are three popular ways to use the MACD: crossovers, overbought/oversold conditions, and divergences.

The most common use is as a crossover method. Using this interpretation, the trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.

Some traders will use MACD as an overbought and oversold indicator. When using the indicator in this manner, when the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels. MACD overbought and oversold conditions vary from security to security.

The other way some traders use MACD is to spot divergences from an anticipated movement. Since there are no indicators or patterns that work all the time, reactions against the anticipated move can signal a major move. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.

Let’s look at Qualcomm Corp. (NASDAQ: QCOM).

One of the most dynamic rises we have had in stocks this past year has been QCOM. Last week, an analyst initiated coverage with a Buy. QCOM rallied parabolic.

On January 3, 2000, QCOM opened with a gap rise and finished near the low of the day. This is a negative pattern and one to watch.

Today (Tuesday), QCOM broke down and gave both Moving Average and MACD Sell signals.

I would exit longs in QCOM. Only a very aggressive trade should consider a Short on morning weakness.