Skip to Content
scroll

Using moving averages in analysis

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked

Using moving averages in analysis

Hi MM Team,

Long time subscriber but first time questioner! I wanted to ask what MM's current purchase appetite is for: BHP (if it weren't already in the portfolio), MFG, RIO and FMG (discussed in a previous newsletter but I'd be happy to read more). Just some quick thoughts to add context to my question: I have recently been doing a lot of charting study, and looking at the weekly and monthly charts alongside their respective daily charts. I set up my charts with 10, 20, 50 and 200 moving averages; often one will see a stock reach a high or low 'in the middle of nowhere' on a daily chart, however zooming out to the weekly chart often shows a different story for the stock price high or low in that support or resistance is found at the weekly moving averages. Further to that, when one examines the monthly chart, in many cases a major support point can be found at the 20, 50 or 200 month moving average.

Some recent examples are: MFG: found it's 'covid low' support at its 50mth moving average, and after its recent decline looks like it might find support at its 200wk or 50mth moving average.

  • BHP: Historically looks like the 20mth moving average has been a good guide for support, and in the next several days looks like the 20mth will be the major support level where the stock might turn around from there.
  • FMG: back around Sep2018 the 50mth was the major support level before its massive run up where (at least on the monthly chart) the covid low looked like a minor hurdle. Today I am looking for a bounce from the 20mth moving average.
  • RIO: Similar to BHP, met its covid low at the 50mth moving average and more recently is showing support at the 20mth moving average.

And for some indexes... the XJO's 2008 financial crisis low found support at the 200mth moving average. NASDAQ's covid low found support almost bang on the 50mth MA. I didn't mean to write an essay but this has been a fascinating study for me and I hope others can learn from it.

Answer

Hi Rowan,

A quick snapshot view on the 4 stocks mentioned :

  • Magellan (MFG) – MFG is out of favour this year falling almost 30% from its 2021 high with fund outflows & performance the big issues, we think gradual accumulation below $40 will pay dividends into 2022.
  • Fortescue Metals Group (FMG) – Down 40% in just a few weeks, feels like an aggressive punt that will pay dividends for the brave.
  • RIO Tinto (RIO) – a diversified miner with major iron ore exposure, it feels ready for a bounce but the medium term picture feels clouded.
  • BHP Group (BHP) – another  diversified miner with major iron ore exposure, again it feels ready for a bounce but the medium term picture feels clouded.

Personally I’m not a fan of moving averages or any technical analysis that’s readily available at the press of a button especially as in this case they reset daily so may and do cross / uncross on a whim, if you want to simply want follow a trend buy stocks / markets that make higher highs and higher lows as opposed to ones that overlap on their way up – BHP is close to overlapping and losing its strong bull advanced as I type.

chart
image description
BHP Group (BHP)
image description

Relevant suggested news and content from the site

Back to top