A great article at Investors Business Daily outlines a buying strategy using the 10-week moving average (50 Day Moving Average).
They suggest that institutional investors (Hedge Funds, Mutual Funds, Pension Funds etc.) may make purchases as the stock pulls back to the 50 Day Moving Average.
Indeed, any time a stock rebounds from its 10-week or 50-day moving average, it can be just as opportune a time to buy as when it breaks out of a base. Or, it can be a good spot to buy additional shares.A little while after a leading stock breaks out of a base, it will often throttle back. That pullback often occurs at the 10-week average.
If the stock remains strong, it will rebound from that line.
Institutional investors like to buy stocks at a lower average cost, adding shares at key junctures such as when the stock hits its 10-week. That’s why a bounce back from the average is called “finding support”: institutions support the stock by buying more shares.
Look for stocks making their first or second pullbacks to the 10-week line after their initial breakouts. Third and subsequent pullbacks are riskier because the stock has probably extended itself too much.