Question: Undervalued stocks and the 200-day Moving Average

[schundler]

Say I'm primarily a value investor.

One of the places I look for stocks is 52-week low lists, and largest percentage losers over day, week, month. This is the first step in the process, I'll then analyze some of the stocks I find, and if I find something I don't like about the stock, I move on to the next one.

I look at these lists to find fundamentally good or fundamentally OK stocks that have been beaten down too hard by the market and are selling at a discount. The same fundamental company that is still making the same earnings, still has the same assets is now, for a short time selling at a bargain price.

Of course, it's not that easy, because the stock could still be overvalued, or its trend is still downward.

One of the ways I've read to determine which way a stock's general trend is going is to compare the current price with its 200-Day Moving Average. If the stock's current price level is above the 200-Day MA, it will likely continue to trend upward, and if it is below it is likely to continue to fall.

This is a bit paradoxical to me, and I went to a few other sites and found: " On the surface, it seems as though the higher the "% above 200" goes, the more bullish the market is (and the lower it goes, the more bearish). In practice, however, the reverse is true."

I read a few other sites briefly and it's clear that the 200-Day MA is definitely significant in spotting trends.

So say you find a fundamentally good stock that you think is undervalued. Low p/e compared to others in the industry, not that much debt, etc etc. Do you then look at the 200-Day MA to determine a) whether to buy or b) when to scale in?

Is it significant when a stock crosses the 200-Day MA line in either direction?

All insight appreciated, I have a lot to learn.