Monday, October 7, 2013

SPY Is Testing the 50 Day Moving Average Again

S&P 500 and 50 Day Moving Average
Click on Chart of S&P 500 to Enlarge

In a recent post in July called Testing 50 Day Moving Average, I briefly discussed a not uncommon instance of price action where the S&P 500 had consolidated at the 50 day moving average and had touched it several times in a row or in a cluster without much directional price movement.  Since that post we saw a similar thing happen in August and we are seeing it happen again now.

Refer back to that post to get the idea of what to expect.  Basically they often resolve with a sizable gap.  And we are indicated to gap down this morning to near the bottom of the recent short term range.  I would expect a move to new corrective lows based on this type of price action.  But as occurred in August, it could be an exhaustion type of move for the correction if the uptrend is to persist.

Also just to rehash the price logic situation a bit here, unless SPY is below 162.95 by Thursday of this week, then the price logic would still suggest an upwards trend.  That doesn't mean a high can't have been made and support won't be broken, but it does give us an indication that the market psychology did not tip the scales to downward coming off the recent high.  And it could very well be an indication that the uptrend will continue as we reach the seasonally strong portion of the annual stock cycle from November to April.

So if prices move to new highs, I would suggest having a breakout buy strategy in the works with stops already thought out.

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