50 MA
First of all, it should be realized that the 50 MA can be used as a quick gauge to determine if an stock is very strong (rising 50 MA), neutral (flat 50MA) or weak (declining 50 MA). The chart on the left is an example of a very strong stock. Note how steadily ¡ts 50 MA has been rising. As long as the 50 MA is rising, as it is on the chart, it is undergoing major institutional buying and is a good candidate for purchase. However, aside from being a valuable filter, the 50 MA's most valuable trait is its tendency to halt a stock's decline dead in its tracks. For reasons which I cant go into at this time, the 50 MA is a powerful area of price support for most stocks, and when an issue falls anywhere close to it, massive buying typically comes into the stock causing an almost immediate advance.
Once again we will turn to the chart for a perfect example of this amazing phenomenon. Note how each of the three times it moved down to the 50 MA, the price exploded to new highs (see circles). It appears that buyers were just waiting for it to decline to its 50 MA. And when it did, they took control of the issue by snapping up the shares at an unprecedented rate. In fact, it was the support of ¡ts 50 MA which caused the 6-8 Week Breakout ¡ referred to earlier. Had you bought at each point, your gains would be quite large. Try it.
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