The most important trend-following tool for growth stock investors is the simple 50-day moving average. You should own growth stocks that are in uptrends above it, and you should welcome opportunities to buy when those stocks correct down to that 50-day moving average. (It’s usually best if that average is rising.)
The 200-day moving average, by contrast, is of little use for long stretches of time. In long bull markets, stocks can trade well above their 200-day moving average for more than a year.
But in major corrections—and even bear markets—the 200-day moving average can be the most valuable moving average of all. That’s because just when all the news seems darkest—just when investors begin to feel that all is lost—the 200-day moving average pipes up and says, “Hey, this looks like a terrible time to sell; perhaps you should think about buying!”
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They say a picture is worth a thousand words, so let’s take a look at the following stock charts.
The 200-Day Moving Average, in Six Charts
The Dow Industrials
The S&P Midcap (MDY)
The S&P 600 (Small Cap)
The NYSE Composite
The S&P 500 (Large Caps)
The Nasdaq Composite (Growth Stocks)
As you can see in the charts above, all six charts are very bullish.
Not only is each of the six indexes above its respective 200-day line, but every single one is also trading above its rising 50-day line.
Granted, each of those indexes has backed off the immediate post-election all-time highs, but these charts are about as pristine as an investor can hope for.
So, for now, we’ll be keeping an eye on our favorite indicators and seeking out the best-looking, market-leading growth stocks to take advantage of the ongoing bull market.
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