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Key Technical Support Level Holds !
Wow, what a day !
It was such a key battlefield day because the 200-Day simple moving average was at stake today. This is such an important level for market technicians because almost everybody keeps tabs on this particular moving average. It's the most recognised long-term trend indicator: fund managers refer to it, academic papers have been written about it, and investment decisions are made based on whether we are above or below it.
Today, we kept our head above water. The market has been looking a bit sick all week until we got to the point where we were seriously challenging this key level. Yesterday we bounced off it. Today, the bears had another run at it from the get-go during the opening trading session.
We closed the day at the 50-Day SMA, which another level commonly watched by market technicians. It's less important than the 200-Day SMA, but a good indicator of short-to-medium term trend.
If we drill into the intraday chart, we can see how the market gapped at the open to dip below the all important 200-Day SMA. This didn't last long as the index recovered to keep its head above water, but bounced around to retest that level.
After a few hours of indecision, we finally got some strength in the afternoon to drive the index higher. At the time of posting this, it's too early to get volume figures for the S&P 500 index from my broking platform, but I'm assuming buyers stepped in on hopefully greater volume to push the index higher. If there isn't an uptick in volume, it usually means it's the sellers who began to exhaust first. There's a couple of strong green candles in the afternoon.
Today ended up being a good day for the longs. The unfortunate thing is we're in a choppy, battlefield market and any trend follow through has been weak of late. There's relief we closed above the 200-Day SMA, but tomorrow is a brand new day. The market has not been very accommodative to trend traders.
Caught that bounce in the futures market - what a good day! I suspect the larger trend traders still have a few more stop loss that we can hunt ;)
@prometheus Ha ha ... I opened my last trend trade back in 7 February. Position size was only 20% of my normal size because this choppy market can't be trusted. The trade only lasted 2 days before they ran my stop which was set at a generous -10%. Total smackdown. Trading operations suspended until we get back to a trending market again.
@jazziyoung, do you track any other broad market technical trends besides 50- and 200-day SMA? How do you feel about EMA (exponential moving average)?
@tomato I was taught not to bother using EMAs because the focus was on reward-to-risk asymmetry, so SMAs would suffice for entry points. A breakout above the 200-Day SMA was the signal, the 50-Day SMA was only used as a monitoring tool to track whether the gap between moving averages was expanding or contracting.
The 200-Day & 50-Day SMAs are the only formal trend indicators I use.
I obviously use horizontal lines of support and resistance, but not sloping linear trend lines. My breakout trades are based on ascending triangles.
That's really it. Really simple, basic rules. The key is all around interpreting what the price-action-volume on the daily candlestick charts are telling you.
I intend to cover the whole thing in a series of future posts. It's so simple, it's almost embarrassing. Given the win rates of the trading legends are only 50%, there's no need to complicate things.
The 200 day simple moving average was defended, and today the bounce continued. Pretty strong move by the S&P 500 going up 1.6%
@nathanworden It was nice to see some follow-through from the Bulls today.
It's also notable that a strong Friday close is a positive sign because it represents a willingness of buyers to hold positions over the weekend. The skittish and risk-adverse traders and investors don't like holding positions over the weekend because they're exposed to headline and information risk and there's little they can do about their market exposure when it's closed. Bad market headlines or bad geopolitical news over the weekend can cause the market to gap down on Monday morning. Plenty of buyers were comfortable carrying that risk.
@jazziyoung another good sign :)
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