Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The Most Overlooked “Buy” Signal in the Stock Market

Stock-Markets / Stock Markets 2015 Jan 27, 2015 - 04:59 PM GMT

By: Investment_U


Editorial Note: With the Dow opening at a loss of 285 points, today’s featured article couldn’t have been timed better. Below, Matthew Carr shares his favorite metric for determining whether a market is a “Buy” or “Sell.” We hope you’re able to put this information to good use.

The markets are flashing red.

Your palms are starting to sweat.

Should you sell? Should you buy?

Is this the bottom? Or the beginning of the end?

For investors, these are the questions we are confronted with. It’s not a game. Our futures - our retirements - are at stake.

That’s why we’re always looking for an advantage. A telltale signal. Something that can tell us whether a stock is a “Buy” or a “Sell.” Whether we should plow into the market or wait for a pullback.

Or simply hit the eject button.

There are a ton of indicators you could use... A parade of technical gauges that traders proclaim have the magic formula for predicting when to get in and when to get out.

In my previous job as a researcher for one of the nation’s top global energy publications, I was trained to use many of these gauges, with the goal of forecasting day-ahead prices for commodities.

It’s what allows me to tell you this secret.

If you’re intimate with the data - if you spend your days compiling trades at various points - and you have an accurate weather forecast, you can predict the short-term moves of commodities with a great deal of accuracy.

That’s because no matter how fancy a technical tool might be, they are all ultimately based on the same thing: human psychology and emotion.

You can sum it up like this...

When things are going well, they have to turn bad. And when things are going badly, they can only get so bad before they turn good again.

We all get that nervous feeling in our guts when things are going a little too well - for too long - in our lives. We end up looking over our shoulder, wondering when the shoe is going to drop.

Yin and yang. Contrary forces that are complimentary, always striving for balance... That’s the most basic explanation of technical indicators.

Over the years, I’ve boiled the technical side of my analysis down to a few very simple pieces. Including one that is often overlooked and ignored - my “Buy” signal.

Moving On Up

You’re probably familiar with moving averages. These are just average close prices over a set period of time.

The most popular are the 50-day moving average and the 200-day moving average. They’re the two most touted technical signals, providing resistance (top) or support (bottom) for shares of a company or an index.

They’re also considered the most important. Because as these two averages interact with one another, you get two very different and very popular indicators: The Golden Cross and The Death Cross.

The Golden Cross is when the 50-day moving average of a stock rises above the 200-day moving average. It’s a bullish sign. Shares of that company will almost certainly move up.

The Death Cross is when the 50-day moving average falls below the 200-day moving average. It’s a bearish sign. Shares of that company will likely continue to move lower.

During a pullback or a sell-off, these are two of the levels that are eyed the most closely...

Though their significance, especially when compared to other less popular moving averages, can be debated - which is what I’m going to do now.

The Third Wheel

Let’s look at the S&P 500 for the past two years. And we’ll include the 50-day moving average and the 200-day moving average...

On the far right of the chart - this month - we see the 50-day moving average trying to provide some support. It did the same thing in the middle of 2014 (notice how it rides the line as support again).

The S&P 500 bounced off it a few times in 2013 as well.

The 200-day moving average, meanwhile, is “correction” level. The S&P 500 dipped below this on its way to a 10% correction in October of last year. But other than that, the metric isn’t that key.

Now, let’s throw in an average that’s often overlooked but has been far more relevant to the S&P for the last two years: the 100-day moving average.

When we add this in, we get a true support line.

Since June 2013, the 100-day moving average level has marked the bottom of nearly every pullback and sell-off. Including the last three violent pullbacks in January and December.

The only one it didn’t capture was the 10% correction in October. But intuition told us that we were going to get a 10% correction because we’d already seen one that year from the Nasdaq, biotechs and the Russell 2000.

Plus we had oil plummeting and third quarter earnings on the horizon. We needed a shakeout.

Nonetheless, this 100-day moving average has been our “Buy” level in my Emerging Trends Trader research service.

Every time the S&P has pulled back to this level, we’ve looked to add to our portfolio. Because nine times in the last two years, this level has been our area of support.

But what about other indexes?

Well, let’s use those same three moving averages and take a peek at the Nasdaq for the past two years.

It hasn’t been as significant to the Nasdaq as it has to the S&P 500. But again, the last three pullbacks all bottomed out at the 100-day moving average.

And just like the S&P 500, the 50-day moving average provided support in 2013, while the 100-day moving average provided support for any more significant pullbacks.

The Nasdaq had a fairly volatile 2014, but the 100-day moving average is our near-term support level.

In other words, it’s a good “Buy” signal from this index, since it shows we’re at or near the bottom of a pullback.

Over the past couple months I’ve written extensively  that January is not the great month for stocks many proclaim it to be. For example, it’s the third worst month of the year for the Russell 2000. And the fourth worst month for the Dow.

January is notoriously full of volatility and down days - a perception normally reserved for September and October.

But we play - and profit from - this volatility by targeting the 100-day moving average. This has consistently been our signal that a bottom has been reached.

Now, a lot of critics of all forms of technical analysis will claim this is all just a self-fulfilling prophecy... and that’s completely true. That’s also the beauty of it. Technical analysis gives rules to a system that is complex... that has billions of shifting variables each and every day.

You can choose to ignore it or you can add it to your arsenal. Doing the latter will help give you some direction on days when you’re asking yourself, “Do I buy? Or do I sell?”

Good investing,



Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules