This Moving Average Must Hold Today
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| Ticker | Position | Sell Date | Return |
| ALJ | Long | 2/14 | +49.8% |
| ECTE | Long | 4/14 | +35.2% |
| JOEZ | Long | 4/11 | +42.2% |
| HILL | Long | 1/31 | +55.5% |
| AXK | Long | 5/31 | +30.2% |
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The TradeMaster portfolio was active again yesterday. On Monday a Chinese stock and RCMT were added to our long positions. Yesterday, F and another small cap stock were added, but F was a short.
Ford announced its second quarter results Monday before the market opened. Financial results were solid and EPS beat analyst expectations. And shares gapped 2% higher to begin the session. But high volume sales immediately dropped shares back to $13.15 from $13.44 intraday highs.
I don't dislike Ford and I think the stock is undervalued. But the current price action warns that more downside is to come. The decline in Ford should stabilize around $12, which is were I would cover. And we can set our stop at $13.38 (1.5%) in case shares rise from yesterday's decline.
The market has slumped lower today, but the bulls remain in charge of the trend as long as SPX can hold the 50 DMA (currently at 1310).
Very often the direction to take on a trade will depend on the trend. Basically, price can be doing only one of three things when evaluated over a given time period: trending up, trending down or moving sideways. Traders want to be buying in an uptrend and selling in a downtrend.
I use moving averages to evaluate trend strength. Moving averages smooth out a data series and make it easier to identify the direction of the trend.
Moving averages are one of the most popular and easy to use tools available to any trader. A simple moving average is formed by computing the average price of a security over a specified number of periods.
For example: a 10-day simple moving average is calculated by adding the closing prices for the last 10 days and dividing the total by 10.
This smoothes the plotting of a data series and makes it easier to spot trends in three ways:
- If the moving average is rising, the trend is considered up. If the moving average is declining, the trend is considered down.
- Another trend identifying method is to compare the price to the moving average. If the price is above the moving average, the trend is considered bullish. If the price is below the moving average, the trend is considered bearish.
- A third way to spot the trend is to
compare a short term moving average to a longer term moving
average. If the shorter moving average is above the longer
moving average, the trend is considered bullish. If the
shorter moving average is below the longer moving average, the
trend is considered bearish.
The big test for the market this week will be the ability to hold the 50 DMA - as long as it can do that the market should continue to move higher.
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Send comments anytime editor@trademasterstocks.com
