Daily SP500 Shows Strong Bounce off Rising 20 EMA

Sep 28, 2009: 12:06 PM CST

Mid-day on Monday, the S&P 500 is up over 1.6% after successfully ‘bouncing’ off the 20 day EMA at 1,045.  Let’s take a look at the current daily S&P 500 to see this bounce and what it might mean.

In an uptrend, the rising 20 period EMA is often expected to be a support zone, as traders enjoy ‘buying pullbacks’ to key moving averages as seen above.

Moving averages also define trends, and the “orientation” of the moving averages (20 EMA above the 50 EMA; both above the 200 SMA) is as bullish as it gets.

As such, price is rallying today as traders continue the “Buy the Dip” mentality in a strong and quite extended rally in the market off the ‘failed’ head and shoulders pattern in July.

There’s been a bit of a volume decline as price pulled back in the recent down-swing from the recent 2009 highs… which is actually bullish.  Low-volume pullbacks are bullish and hint that the retracement is unfolding in an orderly – instead of panic/urgent – fashion, which underscores the health of the uptrend.

As such, 1,045 (rounded to 1,040) is the “Line in the Sand” and I would not be short as long as price is above that level.  A break of 1,040 would target the rising 50 EMA and the ’round number’ of 1,000.

Until then, price seems angling its way to test the recent highs with a good a chance as any to exceed them on the S&P 500 march to 1,100 or 1,124 (the 50% Fibonacci level).

Let’s keep our attention focused here!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

8 Comments

8 Responses to “Daily SP500 Shows Strong Bounce off Rising 20 EMA”

  1. JeffreyLin Says:

    exactly why i was AFRAID to stay short on Friday corey! great minds think alike;)

  2. Corey Rosenbloom, CMT Says:

    Hey Jeffrey!

    Exactly! That was a 'line in the sand' that people were watching closely. Bulls still haven't given up yet – bears had a nice run-down to the 20, but bulls picked right up where they left off. Wild.

  3. terlyn Says:

    What is the meaning of the sudden change in dollar vs oil? The dollar seems to have broken its downtrend, and oil and the dollar as well as the markets are all trading higher.

  4. JeffreyLin Says:

    $ES bouncing off 20SMA, reclaiming hourly 20, 50, and 200SMAs…nothing for the bears to see here until we break those hourlys to the downside.. otherwise pullbacks to these rising MA's could be nice entries 😉

  5. JeffreyLin Says:

    exactly why i was AFRAID to stay short on Friday corey! great minds think alike;)

  6. Corey Rosenbloom, CMT Says:

    Hey Jeffrey!

    Exactly! That was a 'line in the sand' that people were watching closely. Bulls still haven't given up yet – bears had a nice run-down to the 20, but bulls picked right up where they left off. Wild.

  7. terlyn Says:

    What is the meaning of the sudden change in dollar vs oil? The dollar seems to have broken its downtrend, and oil and the dollar as well as the markets are all trading higher.

  8. JeffreyLin Says:

    $ES bouncing off 20SMA, reclaiming hourly 20, 50, and 200SMAs…nothing for the bears to see here until we break those hourlys to the downside.. otherwise pullbacks to these rising MA's could be nice entries 😉