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.

I also use and watch channel breakouts of support and resistance.

The move off Friday’s lows was impressive. They coincide with a very oversold condition that the market has been in for weeks. The move coincides with monthly and yearly cycle lows.

Do we have a tradable bottom?

I feel the risk vs. reward says YES! As always, we need to manage risk and use stops.

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 Intel Corp. (NASDAQ: INTC).

After moving down for weeks and staying below its moving average crossover pattern, INTC found support Thursday and broke up Friday.

The MACD is once again flashing a Buy signal and has also moved above the zero line for the first time in weeks.

A break above Friday’s high will also signal a very bullish reverse head and shoulder formation.

This cross of the neckline will be a 20 period channel high.

Here is a situation from a very oversold state that several indicators and patterns are signaling a Buy.

I would Buy INTC here.

I would place a stop at 39 �.

Many stocks are exhibiting similar patterns. Set up your TORS software with the standard parameters used here and look for similar trades with good risk vs. reward characteristics.