Swing Trading: The Most Important Moving Average in the Stock Market
If you’ve ever wondered why we avoid stocks trading below their 200-day moving averages, then take a look at the banks.
^MS^ is down 20% since falling below its 200-day moving average in April. Shares of ^C^ are off nearly 9% since they moved below their 200-day, and this includes a month-long rally in the stock over the course of June. ^GS^ is down more than 16% since falling below its 200-day. ^BAC^ is off nearly 23%.
It brings to mind something that Larry Connors wrote in his book, Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs:
From Enron to Bear Stearns, from the Internet stock collapse in 2000-2002 to the housing and brokerage stock collapses in 2007-2008, they were all at one time above the 200-day MA, but eventually they all went under the 200-day, preceding the immense losses.
Read more in Chapter 2 of Short Term Trading Strategies That Work. If you don’t own a copy, you can get one for free at the link below.
Here are 7 Stocks You Need to Know for Wednesday
Unlike the banks noted above, all of the stocks in today’s report are pulling back above the 200-day moving average or have recently rallied from oversold lows above the 200-day.
Examples of the first include the equipment and service sector within the oil and gas industry. ^EP^ has closed lower for three days in a row and is oversold above the 200-day moving average. Also down three in a row, but not yet technically oversold, are shares of both ^SLB^ and ^TSO^.
What’s up on a down day? Up well over 1% after a two-day pullback took the stock into oversold territory above the 200-day were shares of ^RRC^. RRC was among a small handful of independent oil and gas stocks that gained on Tuesday while oil and gas equipment and service providers like Schlumberger pulled back.
Among the stocks closing lower for a third day above the 200-day moving average ahead of trading on Wednesday, shares of ^CRM^ finished the Tuesday session just outside of oversold territory.
Pulling back for five out of the past six days and closing in oversold territory above the 200-day moving average on Tuesday were shares of ^YUM^. YUM is among the companies scheduled to report quarterly earnings on Wednesday.
Our PowerRatings Stock of the Day is ^TIN^.
Shares of TIN earned PowerRatings of 8 early in trading on Tuesday, earning a two-point upgrade as the stock began to pullback for a third day. Down three in a row ahead of trading on Wednesday, TIN is back in oversold territory above the 200-day moving average after selling off by 1%.
To learn more about swing trading stocks using PowerRatings, click here.
David Penn is Editor in Chief of TradingMarkets.com