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A downturn in a companies 120 day Moving Average can help as a stop loss device. Similarly, an upturn in the average may help to identify possible recovery stock targets. In order to evaluate the usefulness of 120dma as a research tool, look back with a charts system or package and see how a share price performed in relation to the 120 dma.
The companies that we list are found to have interest as 120 dma subjects. These are not complete lists and are selective. Some possible contenders are often excluded for numerous reasons. Users are reminded that it takes good fundementals, positive niche positions and news flow to make a decent buy subject and these issues should be foremost in research activity.
See the following graph of Marks and Spencer PLC share price over the last four years. We marked clearly a downturn in the 120 dma as example. Note that the share price deteriorated. Although some researchers may have looked closely at the 120 dma at July 1999 the share price continued a downward trend and may still be a bear market. We also marked a point in Feb 2001 in which the 120 dma may be turning up although whether this is significant and decisive remains to be seen.
Further info
The resulting value is then plotted (datewise) to coincide with the final price (742)
Why the 120 dma ? Look at various periods for a dma. We feel that the 120 dma overall offers a reasonable time span and that a shorter time period is less likely to be a reliable indicator.
For further info the Traded Options section in Investors Chronicle refer to moving average indicators in describing potential investment opportunities or warnings. Although they use moving averages in different ways club members may find this regular column of help.
Please be aware that whilst the use of moving averages can be useful all data is historic and therefore bears no relation to future events. It must only be used as a comparison to what appears to have have happened in the past and in no way is guaranteed to happen again.
We recommend the use of proprietary software packages such as Metastock. These are well advertised at the back of Investors Chronicle. Web based packages are usable but not as good and with demise of UK-Invest we prefer Yahoo City and Finance.
Firstly investigate the graph in order to consider the position of the share price in relation to moving averages. Secondly, search for news. This may be carried out under "Archive News" on our home page. Fundemental data can also be found at Hemscott and the search box is also available on the home page.
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