A Simple Indicator To Find If Stocks Are Cheap Or Dear

A simple technique to find whether stocks are cheap or dear is to measure the number of stocks selling above or below their 200-day moving averages. This indicator cannot forecast what stocks are likely to do. However it can tell the investor as to where he or she is at any point. Most investors do not even know where they are, much less where they are going.

Using the 200-day moving average indicator:

  • If 70-80% of the stocks are trading above their 200-day moving averages, they are not cheap.
  • If 70-80% of the stocks are trading below their 200-day moving averages, they are not dear.
  • If 40- 70% stocks of the stocks are trading below their 200 day moving averages, the market is in a neutral zone. Buying can be considered.

This is shown in the figure below:

Moving average-stock risk indicatorYou can calculate this for any groups of stocks, like the DJIA, Nifty, S&P 500, etc.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s