There are 5 dominate moving averages I have always taught my traders to keep a close eye on, but few attract more attention from the big institutions than the 50-period moving average (50-ma). That’s why for my long-term wealth plays, it is my moving average of choice. It is so prevalently watched that its support and resistance characteristics are uncannily accurate and seemingly unreal.
Let’s take a look at two of my wealth plays to see just how "supportive" the 50-ma can be.
After the elephant like buy bar, a sharp rally ensued, one I thought got a wee bit too ahead of its self. So I sold off 1/3 of the position I was holding. You see, I don’t really like stocks I’m accumulating to run up too quickly, for obvious reasons:
1) I will not have had the chance to get a large enough size to make it a huge wealth score and;
2) too much of a good thing too quickly can burn a stock out, requiring it to have to languish for longer periods of time before it’s ripe again.
So, whenever a quick, abrupt run up occurs, I swiftly take some off, knowing I’ll have an opportunity to add it back. That add back opportunity came rather quickly when GCA pulled back to its 50ma and held. Do you see the italics here? And held! Just moving back to the 50ma is nothing. Moving back and holding is everything. The 1/3 previously sold was put back on.
The second opportunity to see the power of the 50ma occurred recently. To be frank, I missed this one, because I was dealing with lawyers all day (be gone with them!), but had I been around, a buy on the elephant bar around $7.50 would have been made. No biggie though. More opportunities will materialize.
The Key Point
So what’s the key point being made here? It’s simple. Since the 50ma is being watched like a hawk by just about every major institutional trader interested in the stock, you should be watching it like a hawk in your stocks of interest. But wait…there’s more. Not only must you watch the 50-ma, you must use it in a way to let you know if the big institutions are buying/accumulating the stock. If and when a stock drops to the 50ma and it holds, you know the big boys are accumulating, because they love the 50-ma.
You see, all these overweight fellows do (and yes, most of them are heavy) is sit at their desks, eating Subway salami hero sandwiches…you know…the healthy ones… and watch these technical points. And when the stock hits them they stop eating just long enough to act. And that’s it. I know it sounds almost too basic, but there is not much more to it. Sure I know they pretend to be intellectual about it. For instance, if a client of a hedge fund wanted to know more about a certain buy decision, the head traders may pull out a 12 page research report explaining how the weight of a flea’s right wing is a smidgen heavier than the left wing, largely because of the planetary alignment of Saturn’s 4th moon at the time of the flea’s conception and therefore this is why they feel XYZ Company which genetically mutates fleas with equal weighted wings is a good buy with a chance to double. They may do that, but in truth that’s nonsense.
I mean let’s face it. If $1 billion dollars of your family’s trust fund money was just committed to XYZ Company just because it went down to this little gold squiggly line on a price chart, I think you’d take pause, at least just a little, right? So they almost have to come up with gibberish to talk about. I’m just so glad I don’t have to do that nonsense.
Your Homework
O.k. So now that you know the power of the 50-ma, I’m going to show you one more chart. This one is on another one of my wealth plays. I won’t talk about it though. Your job is to look at it and see if you can spot what has been occurring recently. And for the record, I think GCA is a $15 stock and EK is a $30 stock long-term. The world just hasn’t caught on to my idea as yet. But they will. You’ll see. Enjoy!
0 comments:
Post a Comment
Note: Only a member of this blog may post a comment.