Successful Stock Signals for Traders and Portfolio Managers: Integrating Technical Analysis with Fundamentals to Improve Performance, + Website

CHAPTER 17

Investors Need Reliable Signals

50- and 200-Day Moving Averages, Money Flow, Relative Strength, and Directional Movement, with Apple, Home Depot, and Wal-Mart Exhibits

Investors need reliable buy and sell signals that will keep them in a stock for the long-term, in stocks like Apple. Identifying long-term bottoms and tops are key. Relative strength versus the index is the most important. Price patterns such as the double bottom and double top are well known. Candlestick reversal patterns such as the hammer at the bottom and the hanging man at the top are familiar to traders.

Look for negative divergences when the money flow index (MFI) or on-balance volume (OBV) fail to confirm price moves you are seeing on the charts. Gaps, trend lines, and the 50- and 200-day moving averages are all pieces of the puzzle for buying stocks at the bottom and selling at the top. The head-and-shoulders top as well as the inverted head-and-shoulders bottom are classic patterns well known by every investor and portfolio manager. Technicians use pivot point to identify support and resistance levels automatically and Fibonacci levels to calculate retracement levels.

Major support and resistance levels provide one of the key technical signals when they are crossed in either direction. The Point & Figure chart provides one of the most reliable sources of support, resistance and reversal signals. The 50- and 200-day moving averages also guide support and resistance levels, as well as establishing ...