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 Average Crossovers - They work in all time frames.
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 periods) average crosses above the longer-term average from below, this is a buy signal for the next bar’s open. When the shorter-term average crosses below the longer-term average from above, this is a sell signal for the next bar’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 Countrywide Credit, (NYSE: CCR).
There are more than one way to trade stocks. The famous Peter Lynch of Fidelity investments suggests walking around malls and using your own experiences with companies as a way to also pick stocks.
Many times after dealing with a company for the first time, I will look at a chart and see what that company stock price is doing and does it match my experiences. It is surprising that how many times your own experience with a company will be confirmed on a chart. As a general rule, you are usually not the only person receiving superior services and products, nor in a bad experience are you the exception.
CCR on our 60-minute chart is a downtrend. Each minor rally attempt this month has been followed by Sell signals that produced very nice Short profits.
The stock is hitting all time low and looks like this trend will continue.
If you look at a daily chart of CRR, you will see that share holders of CRR that owned it at 45 last June, has seen their investment in this company lose 50% of it value.
The trend is your friend. It is possible that current holders could see further losses in this stock.
Don’t be afraid to combine your experiences with a company and technical trading techniques to produce superior stock picking performance.
Stay with the trend is the message today. A stock is never too high to buy or too low to Short.
Short CRR, it looks like it is going lower to me.
I would place a stop at 25 �.
