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.
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 days) 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.
Let’s look at USWeb Corporation, (NASDAQ: USWB).
A picture is worth a thousand words.
The Moving averages that you are looking at are 5 and 20 period exponential
moving averages on 60-minute bars.
USWB has been in a long-term downtrend.
Yesterday, USWB broke out to the upside taking out several resistance areas.
On Wednesday, USWB followed through and I feel may have more upside potential.
I would Buy USWB here.
I would place my stop at 31.
