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Investors Business Daily
Investors Business Daily
Business
KIMBERLEY KOENIG

How To Invest: 10-Week Moving Average Revived Amazon's Run

In deciding how to invest, stock pickers have a bevy of tools to choose from to help pinpoint when to buy a stock. The 10-week moving average can give investors a second-chance buy point after the stock has made its initial move to new highs.

The 10-week moving average is the red line shown in MarketSurge weekly charts and its data can be seen in the right side pop-out panel. It's calculated by averaging the weekly closing prices over the past 10 weeks. With each week, the oldest value drops off and the most recent weekly close is added to the calculation.

On daily charts, the 50-day moving average works similarly.

How To Invest Using 10-Week Moving Average

Big gains are made with concentrated positions in the right growth stocks. So when deciding how to invest capital, sometimes the best stock is one you already own. It's just a matter of adding to it at the right places.

To build a position, start by buying a stock that breaks out of a proper base during a market uptrend.

Once a quality stock breaks out of a base and starts to run up, it's healthy for it to pause for a breather. During this reset, a stock often tests its 10-week line. That is, it dips to the line but doesn't fall much below it.

If the stock rebounds from the line, that creates a new buy point. It lies at the 10-week average price the week the stock bounces from the line. It goes up to 5% above the entry. If you use MarketSurge, click on the price bar to see the value of the 10-week average.

For many years, the buy range in these buy areas went to 10%. But now, 5% is considered a better buy zone. This helps prevent chasing a stock too far up and increasing the investor's cost basis.

The rebound should be in heavy or increasing volume, indicating institutional demand. This secondary purchase could be a quarter or a third the size of your total position.

Although it works best as an add-on entry, some investors who missed the initial breakout could use support at the 10-week line to make an initial entry.

Amazon Stock Gave Follow-On Buy Point

Amazon.com broke out of a cup base with a 145.86 buy point in mid-November (1).

Amazon stock pulled back sharply the week of Jan. 5, and closed below its 10-week line. Shares then forcibly rebounded off the line the next week, offering a follow-on entry at 148.50 (2). The 5% buy range went up to 155.93.

Shares continued to rebound and rode the 10-week line up. Another pullback entry appeared the week ended Feb. 2 (3).

Astute investors who bought at the first 10-week pullback entry gained about 28% before the stock reversed the week ended April 19. That set up another chance to use the 10-week line as a secondary entry.

Now, that's how to invest.

Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.

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