Over the course of the day one thing that I have noticed is that many stocks are starting to see their 50 day simple moving average catch up to price. Going back to simple rules from Investors Business Daily, the 50 day simple moving average (used interchangeably with the 10 week moving average) can be a key turning point to further price action.
Buy Signals
“…during a big price run a stock will periodically pull back to its 10-week moving average line to take a short rest. Then after it finds support at that line, it will resume its climb.”
“That support comes from big institutional investors who will often step in to buy shares during a pullback to a 10-week moving average line. And their buying will then push the stock’s price back upward.”
“If you missed out on a stock’s initial breakout, its first and second rebounds from its 10-week or 50-day moving average lines give you a chance to buy shares.”
Sell Signals
“If you see a stock fall below its 50-day moving average line on its heaviest volume in months, it’s a sign big investors are selling, rather than buying.”
So with this information I decided to run a scan that looked at stocks with the following criteria:
- Market Cap greater than $300 million
- Low was less than 50 day simple moving average
- Close was greater than 50 day simple moving average (telling me some buyers stepped in)
- Relative Strength line (comparison to Russell 3000) was great than its 21 day simple moving average (weeds out the stocks that have been previously weak).
The overall results of the screen can be found here (sorted by volume) courtesy of FINVIZ.
Overall I wasn’t too impressed with the stocks that it returned as there were no real big names. Also this was a quick scan just to see what stocks were displaying the criteria and also it can be used as a watch list as to how they perform in the future. If there is continued selling after today’s bounce in these names then obviously institutions are not quite interested here. Keep in mind this is not a buy list but more of a wait-and-see list. Also with these stocks I would prefer to see heavy volume as a further sign of institutions supporting price action. I just wanted to show a way of taking market observation (50 day simple moving average catching up to price), coupled with prior education (IBD rules), and plugging it into some scanning software to see what the results were.
Below I listed some of the stocks that I liked more than the other returned stocks. Each stock can be enlarged by double clicking in order to get a better view of the notes on the chart. The stocks are listed alphabetically.
BIO
DFT
GEVA
HR
OMN
PFS
UGI
