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Why You Need to Watch the 200-Day Moving Average

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Using moving averages is a key part of my stock strategy.

I’ll tell you why in a moment…

But first, let’s cover the basics.

A moving average (MA) is a stock indicator that is available on almost every charting platform.

It is a dynamic line that plots the average price of a security over a given time period.

Traders typically use 50-day and 200-day MAs, but they can be set to pretty much any length of time.

The reason they are useful is that they help to smooth out the day-to-day volatility and show the general trend of a stock or index.

How I Use Moving Averages

As regular readers know, the 200-day MA is my favorite long-term trend indicator.

I will not buy stocks trading below their 200-day average.

Period. No exceptions.

When a stock trades below its 200-day moving average, it represents a major violation and a clear signal that it is no longer in an uptrend.

At current levels, the major stock indexes are well above their 200-day moving averages and continue to trend higher.

But as I’ve mentioned several times over the last few months, stock participation is low.

In fact, only 39.9% of stocks are currently above their 200-day moving averages.

Percentage of Stocks Above 200-Day MA (Top) & S&P 500 Index (Bottom) — Source: TC2000

So how is this possible?

How can the S&P 500 index, which most investors think of as “the market,” be approaching all-time highs, but most stocks are nowhere near highs of their own?

The Market Illusion

Well, it’s simple…

The indexes are an illusion.

They’re wildly over-weighted by a small handful of stocks – mega-cap favorites like Apple (AAPL), Amazon (AMZN), Tesla (TSLA), Microsoft (MSFT) and Nvidia (NVDA).

All of these have become extremely crowded trades.

Right now, a lot of money is piling into a small group of large stocks while the rest are left to wither.

In a “good” bull market, a monkey with a dart board can find winning trades with good results in the stock market.

Of course, it’s easy when everything is going up.

But that’s not the environment right now.

Wait for the Right Setups

The “smart money” players — institutions, hedge funds, etc. — are being selective, and the big moves are limited to a smaller number of stocks.

This is not a time to be overly aggressive, especially if you are new to trading.

Instead, focus on finding good setups with signs of institutional buying.

Then, wait for a low-risk entry point.

This is what I try to do here every week at Stock Surge Daily.

But if you’re unsure of how to best take advantage of my weekly trades or how to determine the best entry points…

Check out my recent article, How to Follow My Weekly Trades.

Embrace the surge,

Ross Givens

Editor, Stock Surge Daily

Ross Givens
Ross Givens

I bought my first stock when I was 12 years old. It was Microsoft. I’ve been a registered financial advisor. I’ve worked as a stock broker. I ran a managed fund. I was a Vice President at JP Morgan with Series 7, Series 66 and Series 3 securities licenses. I’ve been featured on Fox Business, CNBC, Bloomberg, and a bunch of other networks. The only thing I enjoy more than making money, is helping YOU make money.

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