200-Day Moving Average and Stock Price Relationship | Test Prep

The Relationship between the 200-Day Moving Average and Stock Price

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Question

If the 200-day moving average for a stock is well above its current price, then

Answers

A. the stock price must have experienced an overall upturn. If the current price slide reverses itself, and the stock price moves above its 200-day moving average on heavy volume, technical analysts would view this as a very positive sign.

B. the stock price must have experienced an overall downturn. If the current price slide reverses itself, and the stock price moves above its 200-day moving average on heavy volume, technical analysts would consider this to be a sign that the stock is overbought.

C. the stock price must have experienced an overall downturn. If the 50-day moving average is also below the 200-day moving average, but then moves up above the 200-day moving average, technical analysts would consider this a sign that the market is overbought.

D. the stock price must have experienced an overall downturn. If the 50-day moving average is also below the 200-day moving average, but then moves up above the 200-day moving average on heavy volume, technical analysts would consider this to be a bullish sign.

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Explanations

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A. B. C. D.

In order for a moving average of a stock price to be below the current price, the stock price must have experienced an overall decline. Technicians believe that the current price breaking through the moving average from below on heavy volume is a very positive sign, and may well signal the reversal of the declining trend. If the current price breaks through the moving average from above on heavy volume, this would be taken as a very negative sign. The same is true of changes in the relative positions of a longer moving average and a shorter moving average.

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