The 200 Moving Average Saves The Day…Again
Two weeks ago, I wrote about levels on the S&P500 to play attention to and if the levels were breached, it was time to reevaluate things.
Well, it’s time to reevaluate things because price breached those levels, like a hot knife cuts through a slab of butter. But what made price stop here, was the Market oversold. It was, but it was actually something else.
The moving average is the most ubiquitous and simplest technical analysis tool used by discretionary and system traders, market analysts and those pestering algos. The 200 moving average, the king of moving averages is used on a daily chart to determining the overall long-term market trend over the last 40 weeks.
Discretionary and system traders, market analysts and those pestering algos also use moving averages for support and resistance. For example, in February and April of this year the moving avg. served as support for the Market. Despite the Market causing mayhem earlier this year, the 200 MA told me the Markets were still trending up and not to be concerned until there were substantial daily closes below the 200 MA (yellow line).
Last week into this week was no different. Prices stopped and consolidated around the 200 MA, before moving higher yesterday. I’m not surprised because all the algos, hedge funds and institutions out there were looking at this same level as a level to buy the dip.
So now what? The bulls think the dip was just part of a normal correction before the uptrend continues because the fundamentals in the business cycle haven’t changed. The bears think despite monetary stimulus and Trump administration's tax cuts, as rates rise and yields climb, economic growth will slow down, pressuring companies' future earnings.
However, the chart suggests price is range bound at the moment and sitting between weekly demand at and weekly supply at . In order for the trend to continue, price must breach the the weekly supply zone at 2940. If the weekly demand zone is breached at 2725, it will further support the bears’ thesis.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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by rollandthomas
It's interesting to watch and I doubt there is really a wrong or right way to view this index right now. It is fairly commonly accepted that markets like this can almost be viewed as a house of cards. Yet these card-houses are remarkably resilient and are not necessarily unsustainable. It's always as if they could topple, but probably won't.
Totally agree, the Markets remain resilient, but what goes up, eventually must come down at some point.
Nothing lasts forever.