Stock Trend Analysis
Part Two of a Two Step Process

Before doing a Stock Trend Analysis, you need to have identified the trend of the general market by using the simple procedure described here. Remember: do not go against the general market trend! You can apply the same Moving Averages and the ADX studies to your favourite stock, to get an objective measure of its the direction and momentum. Check the RSI to make sure a change is not in the wind, and look ahead about a month to see whether any earnings dates or dividend announcements are due.

The graph below shows a good example of a classic stock trend analysis. The point of a trend reversal is quite clear, when the 10ma and the 30ema cross paths. This is confirmed when the stock price crosses over the 200 day moving average, and at the same time the ADX rises above 20. From this point on, the stock is in a perfect trend for trading credit spreads or naked puts - you could have profited off this stock for about 10 weeks! Later on, even though the RSI is above the 70% line (indicating a potential trend reversal), the ADX is still very strong, meaning that a sudden trend reversal is unlikely.

Stock Trend Analysis

Note: The Moving Averages study is NOT predictive; it lags by about a week, and shows how the momentum changed a few days ago. It merely shows that trend is in place. The RSI is more predictive when it moves into extremes (above 70 or below 30). If you have OCD or obsess about timing the market down to the minute, you can combine these indicators with other stock trend analysis techniques that can pin point market turning points often to the exact day and ride the predicted trend afterward to the next minor/ major trend reversal points. Just remember that the more complex your stock trend analysis, the more risk you have of getting it wrong!

Support and Resistance

Once you have identified a good trend using the basic indicators for stock trend analysis, you need to watch for areas of support and resistance. These are points where the price seems 'reluctant' to move up or to move down. Once a stock hits one of these marks, it must either break through, or reverse the trend. On the graph, you can see that GOOG found support at around $560. It touched that point three times, before moving up. On the way up, it found resistance at the 200 day moving average, and dropped back down to the support level. Later, it broke through the 200 day MA line, and that was the start of a good long trend. Towards the end, it seems that it may have hit a point of resistance at the price of about $760. A couple of days would show whether this is confirmed by a trend reversal or not. With practice, you can easily start to identify these lines for yourself, or you can get a bit of free help! I usually use a service call Stock Consultants to confirm what I am seeing - they provide a very clear analysis, telling you points support and resistance, and the strength of these points.

Scanning for Trending Stocks

It is very easy to run scans for trending stocks using either Stockcharts or Stockfetcher. You can read my page "Scanning for Stocks" for general information, and I have also posted specific scans that you can copy-and-paste to enter into Stockcharts or Stockfetcher. The scans run a trend analysis on all the stocks you specify, and come up with a list of up to 100 picks for you to work through.

One More Confirmation....

Stock trend analysis is even easier than falling off a horse. However, there is one service that I can recommend that really does this well. Go to MarketClub, and sign up (for FREE!) to their Portfolio service. Enter your list of favourite stocks, and you will receive an e-mail every day about an hour before the market opens. For each stock in your list, you get a trend analysis with a graph. I have found this incredibly useful.

It really is as easy as that!

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  • This page is a continuation of the process of trend analysis. You probably came here from the page about market trend analysis and this is Part Two: Stock trend analysis. Once you have mastered this two step process, you will easily be able to apply it to trading credit spreads or naked puts, which you can easily use to gain 10-15% or more on your portfolio each month!

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