Different moving averages explained
2. Sell stocks that show weak relative strength (underper form) after a rally: This is the opposite of strong relative strength. If a stock is weak over the long term, there may be a fundamental issue with the company. A stock that does not keep up with the main index is never a good sign. In this situation we would sell the stock on a rally to the 50-day moving average. An example is BG Group:
In early October 2012 the stock moved above its 50-day moving average on weak relative strength. The relative strength line had been declining for more than six months. That was a signal to sell and, as we can see, the share price collapsed at the end of October.
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CHART - BG GROUP
February 2013
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