No matter what, never buy a stock when it’s in a downtrend. A downtrend signals that the stock is likely to move lower rather than higher. The only exception would be when the downtrend is induced by events unrelated to the company, such as an overall market overreaction to an external event, such as the September 11 attacks.
Don’t be in a rush to jump on downtrending stocks when you think you’ve spotted a reversal. Most stocks consolidate for months before recovering from a significant downtrend, so you usually have plenty of time.
Another way to determine a stock’s overall direction is by comparing the stock’s current price to its 200-day and to its 50-day moving averages (Figure 14-4)