Put Your Reading Glasses On for These Price Levels

It has been over a full month since the S&P 500 last tested its 20 day moving average. Price has been below that reference point for quite a while, and the 20 day is declining to boot. With the rally not being faded this morning, it makes sense that we will see a test of the 20 day moving average coming up. As you can see on the daily chart of the S&P below, the 20 day (orange line) is currently at 1317, but going lower.

The bears have seen plenty of things break in their direction since May. Whether or not that continues is likely to be reflected upon a test of the 20 day by price this week. A sharp rejection from that reference point will only perpetuate the correction, while a break of it to the upside opens the market up to a further rally, perhaps to 1340 or so. Also note that the 1317-1320 are marks the spot of the 150 day moving average, from which we broke down last Friday after bouncing along it for nearly two weeks. We probably should make it back up there and then see some churn.

Moving averages are simply reference points, and not magical places to buy or sell. However, they are a good gauge of the underlying strength of the market, or lack thereof. As such, they should be closely observed when he market has been indecisive but attempting to stabilize.

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