Each day after market close the database is updated and scanned to determine how many of the stocks are above their 50 day |
simple moving average. Each day's answer is used to recalculate a 20 day simple moving average for the tally of stocks closing |
above their 50 day simple moving average. That is the red line you see on the chart. When that red line drops below a reading of |
9 and starts up again, I use it as a low risk intermediate term entry point into gold stocks that I like. When the red line gets over |
26, I become cautious and start thinking whether to sell out, sell calls, or do nothing. |
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The theory is that it takes a lot of selling to put at least 26 stocks of a 36 stock database from the same sector under their 50 day |
simple moving average and keep them there long enough for a 20 day simple moving average to drop below 9 and a lot of buying |
for it then to rise up to 26 on the same 20 day basis It's purely sentiment, a measure of fear and greed. Strangely, the most difficult |
thing to do is buy when the sentiment is low, even though history shows time and again that the selling will stop soon. For me the |
key is: be sure the sector is in a bull market and wait for that 20 day simple moving average to start back up. That means that many |
of the stocks have stopped falling. |
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No indicator is foolproof. This one is no different and should be used in conjunction with other indicators like MACD, RSI, and |
Stochs combined with some common sense. |