Information contained on this page is provided by an independent third-party content provider. WorldNow and this Station make no warranties or representations in connection therewith. If you have any questions or comments about this page please contact firstname.lastname@example.org.
SOURCE Zacks Investment Research, Inc.
CHICAGO, May 2, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Fairway Group (Nasdaq:FWM-Free Report), Apple (Nasdaq:AAPL-Free Report)and FedEx (NYSE:FDX-Free Report).
3 Signs of Stock "Mayday"
The word "Mayday" is used internationally as a distress signal in radio communications. I'm sure we've all heard it used in movies and on TV. Here I'm going to give you some things to look for from a technical perspective that could be telling you that it's time to jump ship on your stocks.
Lower Highs, Lower Lows
A stock that can't break through to higher levels should be a warning. This can start off very innocent and end very painfully for investors. Stocks move in cycles or waves not in a straight line upwards. When a stock runs out of gas before taking out the previous high it means there is a lack of buyers at the high. This implies that the market believes that higher level is too pricey for the stock. Overall a very bearish sign.
Lower lows show sellers taking control, coming in with volume and forcing the price down. This side of the chart is even more significant than the lower highs. There exist bullish patterns with lower highs and higher lows where a stock can dig out and thrust higher. If the support levels for the stock keep on giving way, it's tough to convince buyers to step in with force.
Look at how lower highs and lower lows began to occur on the Fairway Group (Nasdaq:FWM-Free Report) stock chart months before the real pain began. After hitting a new high of $28.87 in July 2013, FWM went on to make a lower high of $27.31 on August 8th, before heading down to carve out a lower low at $22.01 in September.
The next attempt higher stalled out not only short of the 52-week high but also short of the August high. This was a big warning sign that many investors missed. Early November kicked off a period of huge losses for FWM. In less than 12 months this stock has shed over 75% of its value.
Trading Below a Medium Term Moving Average
Don't ever forget the phrase "The trend is your friend." I've found that determining the trend is as easy as comparing a stock to its medium term moving average. I like to use the 25 day simple moving average shifted to the right by 5 days (25x5). The shift helps me avoid whipsaws in my trading. Whipsaws occur when a stock changes trend several times very quickly. This forces traders to switch sides from long to short and back. Whipsaws are a great way to lose money fast.
I compare price to the 25x5 to give me a clear cut definition of the trend. If the stock is trading above the 25x5 then it's in an uptrend. If it's below, then it's in a downtrend. One big "no-no" when it comes to trading is being long a stock when it's in a downtrend, hoping that it turns around. You're much better off selling when it begins its downtrend and buying it back when the uptrend continues.
Take Apple (Nasdaq:AAPL-Free Report) as an example. If you sold AAPL when it dropped below its 25x5 in October 2011 you would have avoided the slippery slope that drove the stock all the way down below $400. Along the way, if you bought on what you thought was the reestablishment of the uptrend and the price came back down like it did in December 2012, March 2013, and April 2013, you would have only lost a few points if you closed your positions when the stock ducked back below the 25x5. Then as the trend finally reversed, you would have been in at a cost in the mid-$400s, a far cry from the $700 you would have ridden it down from had you ignored the trend along the way.
Breakdown of Long Term Support
It's very important for you to map out exactly where the levels of support and resistance are for every stock you buy. Prior to entering any trade you should know where a potential stop loss level is and where you'll likely exit the trade. Without this information you have no way of knowing if you have a good risk versus reward ratio for your trade.
There are a few ways to determine where these levels of support and resistance are for your stock. One of the oldest ways to do this is using a point and figure chart. Point and figure (PnF) charts differ from most charts in that the horizontal axis does not divide time evenly. Price movement dictates how wide each chart is. The chart is made up of X's and O's that tell the story of the stock.
A stock on the way up is marked by an X. As price moves up, another X is placed on top of the first X and so on and so forth until the stock reverses by a set amount, most of the time $3. When the stock goes down by $3, then a new column is started using O's. For each dollar the price goes down an O is placed below this O until price goes up from the lowest point by $3.
It's easier to see when you look at the chart. What's also easy to see by the chart is levels of support and resistance. For example look at FedEx (NYSE:FDX-Free Report). The PnF shows the $130 price level as a long term support level for the stock. If you were long FedEx, a stop placed just below $130 makes a lot of sense. This way if support is broken, you're not along for the ride back down to the next level of support the chart shows at $118.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Follow us on Twitter: http://twitter.com/ZacksResearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
©2012 PR Newswire. All Rights Reserved.
Can't find what you're looking for?