Using Moving Averages as a Master Trader

by | Apr 1, 2024 | Chart of the Week Past

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The Master Trader top-down method of stock market analysis is a comprehensive approach that starts with a Techno-Fundamental perspective and narrows to individual stocks.

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Below is a chart of the Alternative Harvest ETF symbol MJ - marijuana using moving averages as a bias.

At Master Trader, moving averages are used as "Visual Aids" to speed our analysis. Distance, Slope and Position are moving average key concepts.

The above chart is an example from an MT Course to example the concepts of Distance, Slope and Position using moving averages. 

The Relationship Between MA’s and/or Between Price and MA’s serve us for:

An Overbought / Oversold Indicator

A Bullish / Bearish Divergence Indicator

A Guide to price Support & Resistance

A Tool to help anticipate where a reversal may occur

A Risk – Reward Indicator

A Relative Strength Indicator

All of those concepts for moving averages are beyond this Chart of the Week, but let's review the chart of MJ below.

Chart Analysis and Moving Averages of MJ

The above chart displays the Alternative Harvest ETF symbol MJ - marijuana.

The correction in this sector began in earnest at the beginning of 2019. And while there have been some short-term advances and one relatively large one in 2021, every advance has failed and was followed by new lows.

It might be different this time. Before continuing, it's improbable that this ETF will reach its old all-time highs this year or next but may have a meaningful advance.

At MT, we are technical, price pattern-based investors and traders using moving averages as a "visual aid" and there are nuances that can make a difference.

In the prior advances of MJ, prices never advanced from a position of the three moving averages based on the same level.

From 2019 to 2021, the 200-MA was declining. The advance at the beginning of 2021 rallied above the 200-MA but then failed and fell sharply below it.

Relatively minor advances failed from the middle of 2021 through most of 2023.

The 2023 advance in September rallied sharply above the 200-MA but fell below and back to new all-time lows.

Master Trader Tip:  It's not uncommon for a bottoming pattern to rally sharply, which appears like the start of a new move that falls back to make new lows.

In November and December, MJ crawled toward its recent Major Resistance in October (the pivot high before a lower low), retraced back a short amount, and recovered immediately.

The price action over many months has aligned all three moving averages together, technically suggesting that the last of the losing holdouts have been washed out over the previous few years.

MJ may not make the sharp advances it did previously but may be able to make a more sustainable, slower stair-step-type advancement this year without falling to new all-time lows again. A 100% advance from current prices is reasonable.

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Happy trading!  If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com