Support, Resistance & 20-day moving average line
One of the things we hear everyone talk about is support and resistance levels and they have been ingrained in people over the past several years. But there are approximately 35 other "technical indicators" that are used, from moving averages, simple moving averages, exponential moving averages, stochastics, bollinger bands, DMI, Relative strength, you name it, it's out there.
So, in this kind of environment, how good are these indicators? Well, simple supports will always be important, as will moving averages. But if you follow some of the other indicators, you may see that they aren't really in step with the market. You may see some stocks move several dollars, but interestingly the stochastics on the biggest movers didn't indicate anything was coming. Nor did the money flow, nor just about anything else.
What does that mean? It means that if the market was "healthy" we would indeed see a lot of these indicators give us a clue as to what may happen in the near future. But, when you are locked in a raging bear market, we have to whittle down the indicators to a handful of the most useful ones. That would be actual support and resistance lines from near term levels, and the "moving averages". In fact, the moving averages are probably
what the street looks at more than anything right now.
Moving averages come in a bunch of flavors. These is a 10 day simple moving average, a 20 day, a 30 day, a 50 day, 100 day, 200 day, etc. Likewise the exponential moving averages come in just as many flavors.
So, why are these important? What is the market looking at with these? Well suppose you are a money manager and you are trying to decide if you should be buying or selling a stock. Let's say that the 20 day moving average is at the 22 dollar level, but the stock is trading at 24.50. That would indicate to you that the stock is "up" above where it should be according to the "moving average". It may be wiser for that stock to "come in a bit" before you attempt buying it.
Likewise, if a stock has been bouncing off it's 20 day moving average and moving higher each time it touches it, chances are better that fundies will look at that and say "hey, let's buy this stock for the bounce". So, as you can see moving averages are indeed important even in a bear market.
Now, the best of both worlds is to find stocks that are approaching a "pricing level" where they have resistance, along with that price level coinciding with a moving average. For instance. let's say the 10 day moving average on XYZ is 12.50 and it has been trading below 12.50 for a few days. We also see that 12.50 has a significant line of resistance from about two months ago. What do you suppose will happen if XYZ can indeed get up and over that 12.50 level? It could explode higher for a day or more.
When you can get a significant price level to coincide with a moving average for either support or resistance, you are increasing your chances of success big time. We especially like to see moving average lines, coincide with a price support level. In a falling market, a combination of both of those increases you chances of a decent bounce higher by about 80%. Keep an eye on the 10, 20, 50 and 200 day moving averages folks. You will be surprised to see how often those averages mean a move one way or the other to the stock.
) It basically uses moving averages, MACD and Pivot lines (based on the previous day). I've been looking at incorporating supportant and resistance lines over many days not just the previous day. Does anyone know of anyway of calculating S/R lines over days / weeks without having to have the graphs to draw on. IE is there a formula like that used to calculate the daily pivot.
