3 Stocks Nearing Critical Support

06/28/2012 9:00 am EST


Tim Bourquin

Co-Founder, The Traders Expo and The Futures & Forex Expo

These shares are drifting close to their 200-day moving averages, which often serves as strong support, and it could mean a near-term bounce.

Most technical analysts agree that the 200-day moving average is a critical level for any market. It can act as strong support if a security bounces off of it and continues higher. It can also act as strong resistance once a stock moves below it. Once below, that 200-day moving average becomes a ceiling of resistance, and can often lead to lower lows.

However, many traders see this level as an exact price target, expecting price to bounce off of it to the penny. That rarely occurs. Instead, think of all price levels, including moving averages and previous highs and lows, as “zones” where price may change course. Anywhere in the neighborhood can be the place where the stock reverses.

Below, with the help of DividendChannel.com, I’ve highlighted three stocks that have recently fallen close to their 200-day moving averages, at least intraday. Whether or not this level acts as support or resistance remains to be seen, but these stocks should be on your radar for the next few days.

  1. Shares of Mindray Medical International (MR) touched its 200-day moving average of this week (nearly to the penny, actually), changing hands as low as $28.64 per share. MR's low point in its 52-week range is $21.25 per share, with $34.07 as the 52-week high.

  2. chart
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  3. Shares of Omnicom Group (OMC) are nearing their 200-day moving average. The 50-day moving average above may provide an upper bound where OMC will trade in a range. Look for a breakout above or below those levels in the coming weeks.

  4. chart
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  5. International Business Machines (IBM) is making a second run at its 200-day moving average, after doing so earlier in the month. It acted as support then. Can it do so again? Watch IBM over the next few days to find out.

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Tim Bourquin is a trader and co-founder of the Traders Expo and the Forex & Options Expo.

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