Long-term moving averages for investing

One of the best indicators out there to see the evolution of stocks or other financial assets is, without a doubt, long-term moving averages.

This simple indicator gives us some entry points that are some of the best we can find in the jungle formed by trading indicators.

However, I am not saying that this indicator is the panacea to succeed in the financial markets anyway.

This indicator works either for trend or reversal markets.

In particular, there is a moment when this indicator is quite good, let us say when it helps us with some long-term decision in any particular asset.

This moment is the one that follows a bear market in general, after which it is the time to do trading or invests in that particular asset, normally stocks.

I am talking about moving averages using 1,000 days or 800, 900 o 1,100.

The same we could do with moving averages of 32 periods using monthly bars which would be equivalent to 900 or 1,000 day bars.

Long time ago I talked about the usefulness of this moving averages, although in that occasion was about the ones that had a duration of 200 periods more or less. The problem with those is that they give us many more false signals.

Another important factor here is to notice the importance that long-term charts have for investing and trading since it is in those where we will use the long-term moving averages and other techniques.

Let us see some examples of this long-term moving averages

We will use some of the biggest stocks in the World, seven of the most important stocks of the Dow Jones: Apple, Boeing, Caterpillar, Cisco, American Express and Chevron.

Some will present better entry points than other however.

Apple moving average

This is a very easy stock to invest in during the last decades.

As we see in the behaviour of the long term this stock stays most of the time above the median average.

What would have been the best moment to invest here?

Well, just wait for a big bear market, like that of 2008 and enter the stock in 2009 at a bargain.

Boeing moving average

Boeing presented interesting entry points in the beginning of the nineties and during the bear markets of 2001 and 2008, after which it had big increases in price.

As we see, in 2010 we had a good chance to buy Boeing stocks, as well as in 2004, years that marked the end of the bear trend for this stock.

Caterpillar long-term moving averages

Caterpillar was sort of trading in ranges during the 80s after which had a fantastic behaviour in the nineties.

The entry points in this case were very good.

Long term moving average of Cisco

This stock was one of the stars of the Nasdaq bubble having an incredible performance until 2000.

As we can see when an asset is in a bubble it is almost always above the long-term moving average.

Also, in this case when we saw the difference between the moving average and the price increasing dramatically like in 1999 it is sign of distress.

The years post bubble has been quite poor, although the signal of 2003 was not too bad.

Long-term moving average of American Express

The evolution of American Express shows us some good entry patterns during the last two decades, especially after the great bear markets of 2001 and 2008.

Long-term Chevron moving averages

Chevron shows us how devastating the bear markets are, either the general bear markets or the sector ones (oil).

In this case there were good opportunities to buy in the 90s and in 2004, after the collapse of the dot com bubble.

Investing with moving averages

As we can see, this is not an infallible method, but you can be sure that if you analyze more stocks you will find many good entry points.

This works very well when we want to capture the start of a great bull market after a time of crisis.

Stocks like Apple usually break their long-term moving averages sooner than other stocks after bear markets which is a good indicator of strength and of being one of the best assets to look for.

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