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 Bottom Line
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.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of stockcharts.com

At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  5. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  4. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!