Monday, February 2, 2009

Here comes another chart.... this time, it is a big kahuna, the S&P 500, which is represented in its trade-able form, the SPY.

We can see a brutal down trend that began on January the 28th.

Today, February the Second, we can see a glimmer of hope, the downtrend momentum seems to be breaking up; the mid-day high was a pretty strong bounce. The bounce actually popped up to the 20 period Moving Average (ma) before retreating.

This is exciting for several reasons:
1) Price has not touched the falling 60 minute 20 ma for a couple of days
2) The mini rally broke the momentum of the downtrend

Since momentum has been broken, we can expect some chop while waiting for Price to indicate a new direction. It could go either way but the bigger picture is down.

All of that to say, more than Price can serve as support and resistance; often certain indicators will have that effect. In this case the 20 ma did the trick. It is a major psychological barrier and a powerful tool that we can use. I like to watch that ma line for market direction (is it generally heading up or down?) and, of course, support/resistance. The 50 ma is also very powerful. More on that later!

1 comment:

  1. Mike,
    Glad to see the charts. I'd like to see SP close above 850 for a few days consecutively with gradual increasing volume.
    Today's volume and today's close of +13 doesn't excite me. But what does catch my eye is the Daily. A higher open than prev close. By a few pennies, but still higher than.
    The 2 yr monthly does not look promising.