• Trading 101: A Quantitative Look

    by  • August 20, 2013 11:44 am • Trading 101 with Peter Bryans • 0 Comments

    The market has been trading lower over the past several sessions and I’m seeing a lot of stocks break below their 50-day moving averages. As a “rule of thumb” the 50-day moving average is a good reference point when looking at the shorter-term trend. If a stock is trending above its 50-day, then one could argue that the short-term trend is to the upside, and that this trend remains intact until we see a gradual decline in the slope of the line and price moves lower. You can apply the same logic to a bearish viewpoint—if price is below the 50-day, then the stock is said to be in a short-term downtrend, and, as always, the slope of the reference point is important.

    Courtesy of our very own QA guy here at Schaeffer’s, my colleague, Rocky White, put together some data that is featured below. First, let’s glance at this chart that shows the percentage of stocks, in the S&P 500, tradingĀ above the 50-day moving average since 2012. Not surprisingly, at various point of new highs, we have seen the % of stocks hit a peak. Eventually, as the index declines, the % of stocks begins to wane.


    Now, here’s a different look at some raw numbers. We’ll focus on the last 10 days of trading (beginning with yesterday, 8/19). After looking through numerous charts, it is very evident to me that many stocks are breaking below the 50-day and are not holding at this level. Yesterday we had just over 6% of all S&P 500 stocks cross below the 50-day. The two days prior showed an even greater decline, and last Thursday we had over 12% of all S&P 500 stocks break below their 50-day moving average.

     

    It is always a good idea to take a step back and quantify the data that you are looking at each and every day–just to put it into perspective. Right now, I’m seeing a lot of stocks breaking the 50-day and trading lower. We shall see where this market ends up by month’s end.

     

    About

    Peter Bryans joined the Schaeffer's Investment Research trading team as a Trader in April, 2012. A graduate of the Fisher College of Business at The Ohio State University -- where he concentrated in Finance -- Peter previously held internships with an insurance broker and a wealth-management firm. In his current role, Peter trades a variety of our real-time option services and also hosts our "Options Apprentice" weekly webinar presentations.

    http://www.schaeffersresearch.com

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