As the broader market, represented by the S&P 500 SPDRs (NYSE:SPY), attempts to surpass the price highs seen in October and November, the 50-day moving average remains well below the 200-day moving average. When the 50-day moving average crosses above the 200-day, it is a signal that the stock price has been improving and that the correction may be over within a stock. The signal should not be used in isolation though, as it is prone to false-breakouts. The following stocks have not only seen the shorter-term moving average cross above the longer-term average, but they are also exhibiting strong on-balance volume - an additional indicator of strength that should add to the reliability of the signal.
New Corp (Nasdaq:NWSA) has had a strong year, up 18.97% year to date, to $17.56 from $14.76. In early December the 50-day moving average crossed above the 200-day moving average, indicating strength. On-balance volume has also been rising, signaling buying interest in the stock. Throughout the year, $18 has been stiff resistance, with the 52-week high at $18.35. A rise above $18.35 is a strong predictor for continued strength - $20 to $21 is the target. On the other hand, an inability to get to (or hold above) that level means the range is likely to continue. (For more, see Moving Averages: What Are They?)
Merck & Company (NYSE:MRK) has rallied back after being hit hard to the downside in August. The 50-day moving average crossed above the 200-day moving average in early December, indicating the potential for further price appreciation. On-balance volume confirms the signal, but ultimately the stock will need to climb above resistance at $36.56 (July high) in order to keep the uptrend in motion. If this occurs, the next target is the May high of $37.65. Short-term support is at $35, with longer-term support at $33. A drop below $33 is a sign of weakness and a further potential slide in price. (For more, see Moving Averages: Strategies.)
US Bancorp (NYSE:USB) recently managed to breakout above a downward sloping trendline that began in February, 2011. This, coupled with 50-day crossing above the 200-day moving average, is a positive signal for the stock. On-balance volume has been ripping higher since August, and the stock is close to July and October highs. The intra-day October high is $26.64 and the July high at $27.17. Clearing these levels sets up a test of the 52-week high at $28.94. On the other hand, a drop below $23.50 indicates weakness.
Williams Companies (NYSE:WMB) is up 28.03% year to date, to $31.65 from $24.72, and has the potential be strong going into next year as well. The 50-day crossed above the 200-day moving average recently, and on-balance volume has been rising aggressively since October. The stock will need to clear the 52-week high at $33.47 to keep the current uptrend moving. If that level is broken, there is no resistance in sight until $38 to $40 - levels not seen since 2008. On-balance volume has leveled off recently though. If the stock does move higher, ideally OBV should confirm. Support is $29 and can be used as a stop level, as a drop below indicates weakness.
The 50-day moving average has crossed above the 200-day moving average in these stocks, signaling continued strength. This indicator is not enough on its own though. Price action will need to continue to push through resistance levels, and on-balance volume should confirm the moves. Support levels should also be watched closely, as a drop below support is a sign of weakness. (For more, see Simple Moving Averages Make Trends Stand Out.)
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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.