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ARCHIVE:    JUNE 1999-AUGUST 2000  

An InvestorLinks article
distributed every market day.

Microsoft Corp  (NASDAQ: MSFT)
Market Call™ for August 10, 2000
Contributed by Mark Seleznov, TrendTrader.com.

The purpose of this Market Call section is to educate readers in technical analysis patterns and indicators. As with all investment information, you need to research information and consult your financial advisor before initiating any strategies that are contained in Market Call.

Also, you must realize that as with all trading strategies, opinions can change quickly depending on market conditions and developments.

This column tries to present historical examples, potential set ups, and examples of entry and exit strategies.

Focus on exit using MACD.

MACD "Moving Average Convergence/Divergence"

The MACD is a trend following momentum indicator that shows the relationship between three moving averages of prices.

This method can be used for any time frame. It could be 5 minute bars, 15 minutes bars or daily bars. Many traders will also trade in multiple time frames using a longer time frame for trend, and the shorter period for entry and exit.

The MACD is the difference between a 26-day and 12-day exponential moving average. A 9 period exponential moving average, called the “signal” (or “trigger”) line is plotted on top of the MACD to show buy/sell opportunities. On the charts below, the MACD line is the green colored line, and the trailing, slower moving line is the signal line. Some technical analysis programs will show the MACD as a histogram bar. There are three popular ways to use the MACD: crossovers, overbought/oversold conditions, and divergences.

The most common use is as a crossover method. Using this interpretation, the trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero. Some traders will use MACD as an overbought and oversold indicator. When using the indicator in this manner, when the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels. MACD overbought and oversold conditions vary from security to security.

The other way some traders use MACD is to spot divergences from an anticipated movement. Since there are no indicators or patterns that work all the time, reactions against the anticipated move can signal a major move. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.

I like to combine this indicator with some kind of breakout pattern.

Let’s look at Microsoft Corp. (NASDAQ: MSFT).

Stocks don’t go straight up or straight down.

There are thrusts up and then they lose momentum and drop down. Many times it is like taking 3 steps forward, then 2 steps back.

The MACD indicator can signal a loss of strength and help a trader plan an exit.

MSFT has moved up nicely over the past few days from a base. The question for a trader is now, when do I exit and take my profit?

The MACD is turning and about to give a sell signal.

If MSFT opens down in the morning, I would exit the trade.

If MSFT opens up, let your profits run and move up your stop to the 73 � area.

Chart courtesy of
 


Interested in adding Market Call to your website?
Click here for details: Market Call Information

Mark A. Seleznov is a General Securities Principal and Managing Partner of Trend Trader, LLC, a NASD, SIPC broker/dealer firm located in Scottsdale, Arizona. A professional trader for over 25 years, Mark was a Market Maker on the Philadelphia Stock Exchange, a Retail Registered Representative, and futures trader. Mark is an author and recognized expert in equity Day Trading. He conducts seminars in Equity Day Trading and offers his firm traders training and support. If his firm holds any positions in the public companies he writes about, it will be noted at the bottom of his article.

Market Calls is a daily syndicated column on trading by Mark A. Seleznov, Managing Partner of Trend Trader, LLC. For information on obtaining Market Calls for your web site, newspapers, or publication, contact
Trend Trader, LLC at 602-948-1146

Disclaimer: Trading in securities may not be suitable for all individuals. Consult your broker or other professional to determine your suitability. This is not an offer to buy or sell securities. The advice given above is of a general nature and should not be taken as a recommendation to buy or sell the referenced security.

 
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Last modified: March 17, 2001

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