Watch 50-Day, 10-Week Lines For Fresh Buying Opportunities
It's frustrating to miss a heavy-volume breakout .
The good thing is that the market likes to give second chances. If it's a truly a strong stock and the market is in a healthy uptrend, there will be plenty of other opportunities to buy it.
The 50-day moving average is the red line found in IBD Charts at Investors.com. It plots a stock's average closing price over the past 50 trading sessions. On a weekly chart, it's called the 10-week moving average.
The 50-day line has proven itself to be a solid support level during a stock's uptrend. It's an area where institutional investors often add to a position, or even start a position for the first time.
It can be a bit counterintuitive buying a stock when it finds support at the 50-day line. After all, you're buying at a higher price from the initial breakout. But buying around the 50-day line can be profitable endeavor, especially during bull markets.
A stock is buyable after the first or second pullback to the 50-day line. Expect volume to pick up when a stock gets support. That's generally a sign that big investors are buying as well.
In some cases, a smaller-sized, starter position is good strategy but if the first 50-day bounce occurs relatively close to the initial buy point, a normal-sized starter position is perfectly fine.
Two other things to keep in mind: A leader can pull back close to its 50-day moving average and start rallying again before it touches the line. Other times, a top performer can undercut the 50-day line modestly and eventually retake the support level in heavy volume. It's OK to buy in both instances.
Biogen-Idec (BIIB) tried to clear a cup-with-handle base soon after the Nasdaq's follow-through day on Sept. 1, 2010. At the time, its Composite Rating was 92 and its SMR Rating was A.
It rose for three straight weeks but never took out the 58.26 buy point with conviction. Instead, it started to trade tightly around its 10-week moving average (1). Biogen eventually reclaimed its 10-week line in October ahead of a powerful breakout.
The stock rallied nicely, logging six up weeks in a row and a 17% gain before setting into a new base (2). The stock traded tightly around its 10-week moving average near 67 ahead of a flat-base breakout in March 2011. Over the next seven weeks, Biogen rallied 55% past a 69.09 entry.
