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As I'm sure you know by now, I'm a technical trader.
The reason that the technicals work is because they're a set of rules that people follow.
This is why you never see a 72-day moving average, who knows, that might be the most accurate moving average line - at least when you're testing for it (I have a friend that did exactly that and wondered why it didn't work).
But people don’t follow it.
Instead, we get things like the 20-day moving average (MA20) and more importantly, the 50-day moving average (MA50)...
That's what we're talking about right now - the MA50.
It's what I like to call the traders' trend line and it tends to be the strongest line to look at when you trade like I do - with a 4-6 week outlook.
It'll allow you to identify the trend for a stock, get ahead of a rollover, and even time your trades.
It can be as simple as looking if it's trending up or down, but you can also apply rules such as knowing that if it's trending higher there's a ⅔ chance that it'll close higher that day, same for if it's trending lower.
Sometimes you can even see a full market pullback forming with it, for this, you need to use a tool that I refer to as the 'market breadth'
It's a chart that looks like this:
This tracks the percentage of companies trading above their MA50 - and that's the secret sauce.
You can see there's been a precipitous drop recently but this indicator tends to rush from one extreme to another, and there are a few laggards that are teetering on their MA50 and ready for a drop - I'll give you the list in just a moment.
But first, we are going to be focusing on this all week, so tomorrow I'll show you how you can use the names on the aforementioned list to formulate a trade - so watch your email for more info on that.
The post These Companies are in Serious Trouble appeared first on Penny Hawk.
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.