After correcting to the 50 day moving average, Alcoa was able to find support and rise to $57 in less than two months.
Back around August 2021, Alcoa had a nasty correction. However, the stock was able to find support at the 50 day moving average. There is something very powerful about the 50 day moving average. Sometimes stocks tend to reverse back up when they hit the 50 day moving average.
Here are a few things that happen when the stock hit the 50 MA.
The stock was correcting to an area of price support. The congestion on the left acted as support. Notice also how the stock was oversold in the stochastics. Another thing that happened as the stock corrected to the 50 day moving average is that it immediately formed a doji after the big red bar.
This told us that Alcoa's bearish momentum was slowing down. Thus there is a high possibility that the stock was about to reverse back up.
And so it did. Alcoa quickly shot back up and overcome the previous high. The previous high then became a support area which help to keep Alcoa from dropping further in the future.
Most of the time, Alcoa was trading above its rising daily 20 MA and 50 MA. This was a picture of bullish strength and the stock drifted higher.
When the stock corrected to the daily 50 MA, the stock was also sitting at the rising weekly 20 MA. Over the years I have found out that stocks that correct to the rising 20 MA in the weekly chart tend to bounce up.
This is because a stock that is above its rising weekly 20 MA is in a nice long term uptrend. Therefore we should always be bullish if a stock is above the rising weekly 20 MA. This is good for medium to longer term investor who wish to hold on to the stock longer.
In the chart above you can see how Alcoa traded above its rising weekly 20 MA most of the time. Even when it closed below the 20 MA, it quickly went back up.
That is the power of trends. If you wish to ride a stock higher, do remember to choose one that is above its rising weekly 20 MA.
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