Moving averages are best used as reference points, as opposed to places where you automatically buy or sell. As an example, let us look at the 200 period weekly moving average for the S&P 500, which more or less marked the place where the market topped out back in April. Presently, the 200 period weekly is at 1194, just about where we are trading at the time of this writing.
Does that mean it is correct to start shorting like the wind blows? In my view, absolutely not. Instead, this is an excellent opportunity to gauge just how strong-willed the bulls (and bears) are after running from 1039 to 1194 over the past two months. Also note the possibility we simply blow up through this level, as the “obvious” resistance may need to be breached first before we dip.
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Chess – Do you consider a “blow up through the level” as a weekly close, or is a daily close or strong intraday move enough?
A weekly close above it, as shorts start to panic when they see they can’t defend this level. It is one scenario, but increasingly likely, in my view.
Bought back some BZH.