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1. The simple moving average American Express Co. (symbol:AXP, exchange NYSE)

Review:

Overview:

The idea for using moving averages is to get an clear idea of the direction of the trend. The shorter the moving average, the more sensitive the moving average is to recent movements (short term trend). The larger the average, the less sensitive the moving average is towards recent movements, and more depicts the longer term direction of the price movement.

Signals:

A positive signal ( B) will be marked when the price crosses up through the moving average. This shows the current close is higher than the last average N days, or it is currently "up" over the last N days. A negative signal (S) will be market when the price crosses down through the moving average, this represents that the price is down over the last N days.

Moving averages are also trend following formulas, their weakness becomes evident in sideways or indecisive trends. The moving average will tend to produce multiple signals as the price rebounds above and below the average. Several key charateristics to indentifying a sideways movement is that while the price is moving around, the trend of the moving average tends to be rather flat. It is this charateristic that makes it worthwhile to look at the steepness of the trend on the moving average.

Strong uptrends are seen when the moving average is well below the price line and strong downtrends are seen when the moving average is well above the price line. Both examples can be seen the chart below.

Example:

! Sideways trends can show up as a cluster of signals. The moving average is a trend following formula and is prone to producing false signals when the trend is indecisive. Moving averages as well as other trend based indicators work best with trending stocks.

While looking at each of the charts, you can quickly see that this may not be the best time for this stock. This may be something to look at on a later date, but for now the stock price needs to settle down.

2. Bollinger Bands and American International Group Inc. (symbol: AIG, exchange: NYSE)

Review:

The Bollinger Bands
Supported Bollinger Band screening and alert signals

Overview:

John Bollinger has written that, "Trading bands are one of the most powerful concepts available to the technically based investor, but they do not, as is commonly believed, give absolute buy and sell signals based on price touching the bands. What they do answer is the perennial question of whether prices are high or low on a relative basis." He goes on to say, "It is the action of prices near the edges of the envelope that we are particularly interested in."

As with most indicators, signals generated by Bollinger Bands should be confirmed using complimentary indicators. According to Bollinger, one of the biggest mistakes in technical analysis is the multiple counting of the same information. For example, using different indicators all derived from the same series of closing prices to confirm one another.

The indicators he recommends to complement Bollinger Bands are:

The charting will produce 2 signals for the Bollinger Band, the first is when the price penetrates the outer band. When prices move outside the bands (B for upper band and S for lower band), a continuation of the current trend is implied. Strongly trending markets will often stay touching and occasionally penetrating the band for long periods generating a series of B's or S's. Watch for initial penetrations of a band, particularly if other indicators confirm a potential move. When the bands are unusually far apart, the current trend may be ending. When the two bands are very tight, the market may be about to initiate a new trend.

The second signal would be when the price crosses the center line. If the line is crossed the outerband can be considered the next price target. (B for up through center line and S for down through center line)

Example:

3. Stochastics and Honeywell International Inc., (symbol: HON, exchange: NYSE)

Review: