Hey 5-Star Trader,
Large-cap stocks can be categorized as any company whose market capitalizations are $10 billion or above. Earlier this week, I tweeted that Microsoft was sitting right on the daily 50 simple moving average (SMA). But why is this important?
Often a large-cap’s individual health can provide clues to the overall market sentiment. So, when they have huge moves or unexpected behavior, such as Microsoft touching the 50 SMA (pictured below), it is important to take note.
When Microsoft hit the daily 50 SMA it told me a few things. Historically speaking, when Microsoft behaves this way we often see it bounce and that is exactly what we saw the following day. Additionally, because it is such a large-cap stock with huge influence over the market, I figured if Microsoft could bounce, the overall market would follow in its place. It seems like that has come to fruition with the rally we got the very next day.
Historical data and large-cap behavior can certainly be used to your advantage if you know what the clues are trying to tell you. Stay sharp traders!