Wednesday, July 14, 2010

Stocks Test Their 50 Day Moving Average

Over the past 2 weeks, the stock market has been enjoying a nice rally but is now testing a critical level. All of the major indices are now testing their 50 day moving average which has acted as resistance since the flash crash in early May.

The stochastic indicator is now in overbought territory which means the market may be due for a move back down. Since April the S&P as well as the rest of the major indices have been making lower highs and lower lows which is the definition of a downtrend, at least over the short-term.

As of now their are no sell signals but it may be wise if you are long to tighten up trailing stops just in case the market does indeed head back down.


Anonymous said...

i agree it is only wise to log in profit now, wait for a pullback and then buy in again. If the market were to break lower after the pullback, your losses are capped to a minimum.

704set said...

Are the stochastic parameters that you use (80/20; k=14; d=3)the widely used numbers (similar to 200 dma) or are these personal prefernce?

Kevin said...

I just use the default settings of 14 which is pretty much standard on most charting systems.


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