SUN TZU: Hold out baits to entice the enemy.
Here is an interesting indicator that has developed among the stocks I watch and most likely is occurring elsewhere: Moving Average Baiting (MAB).
As many stocks over the last several weeks moved up with the general market trend, most have made this move from a consolidation around their 50 period simple moving average (50 tanks), which acted as bait from the March lows, to their 200 period simple moving average (200 tanks), which acted as bait from the 50 tanks.
MARCH LOW - 50 TANKS(BAIT) - 200 TANKS(BAIT)
Thus, we conclude that the MAB refers to the movement of a stock and/or index from one area of consolidation or moving average to another moving average with the moving average acting as bait to entice the movement.
Let’s look at some examples with tables of stocks that have taken the first bait of the move (from the 50 to the 200), a list of stocks that are currently chasing the next bait (200), and, finally, those that have moved beyond the second bait with potential for a pullback for the next move up or continued momentum. Thus, there is obvious potential for upside and downside plays.
I have already highlighted the major indices and pointed out their current positions in relation to the 21/50/200 tanks when we looked at the “sell in may and go away” phenomenon, so here let’s look at a few individual stocks.
MAB COMPLETE: MON XTO OTHERS: CNX
MAB CHASING: WYNN FRO OTHERS: HES SLB X POT FDX NSC CAT FLR BA LMT ENER OIH
MAB POTENTIAL PULLBACK/MOMENTUM: FCX NUE OTHERS: IBM AGN PCP TOL NEM JPM RIMM
Depending upon your own analysis, the stocks you trade, and the set-ups you use to trade, the MAB could indicate a continued upside bias in the market as stocks that have not made the MAB move will continue to do so and lead the market higher.
Also, those stocks that have consolidated or paused at 200 Tanks have moved considerably higher since the pause (indicating the same move for others?). Some examples would be AAPL, V, DRIV, AMZN, BBY, and HD.
On the other hand, you have those stocks that have made the move and could be consolidating or have come to a point of reversal. Much is also dependent on the major indices and whether or not the 200 Tanks is bait for the INDU and S&P, or the NASDAQ will hold the market back with a consolidation or reversal.
Whatever the case may be, always trade with caution but confidence and remember…
IT IS OK TO TAKE THE BAIT, JUST DON’T GET HOOKED ON IT!
Disclaimer: I am in no way recommending how to trade the stocks indicated. This is for informational purposes only and is provided for you to determine its relevance for your style of trading.
