200-WMA...Can it prove its worth yet again?
In technical analysis, the 200-WMA (Weekly Moving Average) is one of the most important indicators that a trader uses to help identify long-term changes in direction of a stock/index. The 200-WMA is supposed to be the dividing line between a Bear and a Bull market. However, there are always a few doubting Thomases who would not believe in such theories. The following observations will prove that the 200-WMA is indeed a very reliable technical indicator.
In January 2012, we came out with a technical report titled ‘Hope floats around 200-WMA’ in which we conducted a study of CNX 500 stocks and the Nifty Index with respect to their behavior around 200-WMA. We recommended three trading ideas which delivered ~20% returns.
In the past couple of weeks, the Nifty has shown resilience to fresh bad news. It has managed to notch back-to-back weekly gains despite downbeat GDP data, S&P’s warning, weak IIP numbers, elevated inflation, policy inaction and euro area debt crisis. The Nifty has been trading in a narrow band of 5,000 and 5,150. A breakout from this range would provide clear signals in either direction. The Nifty has been holding above the 200-WMA and a close above 5,160 should confirm long-term uptrend.
In this note, we have conducted a study of Nifty stocks with respect to their behavior around 200-WMA and recommended 2 trading ideas.
Siemens - BUY