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 Costco Wholesale Corp. (NASDAQ: COST).
It is very difficult for the average person to win in the markets when
companies speak and guide analysts ahead of the general public.
Today, May 24, 2000, before the market opened and before the company
announced lower than expected earnings, the stock started to sell off in pre
market trading. It was determined that the company discussed this with
brokerage firms before announcing it to the general public.
Then the NASDAQ suspended trading at the opening and again the public could
not act on an even playing field with the insiders good boy network.
This has to stop, but I am sure I am not going to be able to stop it. It
goes on everyday with all companies.
What we can do is use technical analysis work to see it coming.
You read this first in our May 19th
Market Call when the head and shoulders
pattern for COST failed, and told us the stock was headed lower.
COST was below its moving averages.
COST broke a head and shoulders pattern on the May 18th.
COST had a MACD sell signal on May 17.
Use these tools to help you identify what the insiders know.
It is all in the stock price!
