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Strategies & Market Trends : The Market Taught Me That......
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To: John R. Sashko who wrote (95)11/9/1997 4:38:00 PM
From: Jeff Bond   of 151
 
My mistake is simple, and can be avoided with one simple chart.

Scenario : When to re-evaluate your position on a high-flying stock.
Indicator : Momentum shifts from buying pressure to selling pressure.
Tool: Moving Average Convergence Divergence (MACD) indicator

Reason: MACD is a technical indicator that measures momentum by tracking the difference between 12-day and 26-day moving averages of closing price. The resulting MACD indicator is then plotted, along with the smoothed result of the MACD indicator (usually 9 days) to suggest potential shifts in momentum (buy/sell points).

High-flying stocks typically show a well-established upward trend in the MACD indicator. Small corrections will occur, but the general trend will continue upward. When the GENERAL TREND of the MACD indicator tops out, and begins to decline, it indicates fairly well a bail-out point.

Risk: Possibility of selling a high-flyer that may continue climbing vs. getting creamed if the issues loses support (sometimes almost exclusively based on on-going momentum buying).

I was excited, I HAD a winner, and it got creamed right before my eyes. It is currently making a nice return, based on rock-solid fundamentals and immaculate books.

Conclusion: Watch MACD to spot shifts in momentum or trading. Consider a short-term selling position (to avoid potential cliff drop) if a high-flyer begins to show signs of a reversal and begins a long-term downward trend. If you fall off the cliff with it, just hang on, because the damage has already been done, and high-flyers are usually quality stocks with the same potentials as before to resume their ascent.

Regards, JB
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