To identify the direction of a stock, we use a popular technical indicator called Moving Averages. The Simplified Moving Average (SMA) is a mean average constructed by summing up a set of closing prices over a specified period and dividing the summation by the period used. The Moving Average can also act as a support level or resistance level when a stock bounces off from it, which in turns will help you time the turning point of a trending stock.
An uptrending stock can be characterized by a moving average that is sloping upwards. Next, we will lookout for possible buying opportunities at the support level when a stock touched and rebounded from an upward sloping moving average.
As seen from the chart of Wan Hai, it had staged a rally after rebounding from an upward sloping 20-day moving average on 15th and 29th December 2010 respectively. Interestingly, this similar bullish configuration has been detected on 10th January 2011 and Wan Hai may see another upside push to test TWD26.10 follow by TWD26.76 next. However a violation below the immediate support at TWD24.00 may negate the bullish tone to see a slide towards the next support at TWD23.60.
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