SPX Monthly Levels and the Magic Indicators Revealing Them

Sep 18, 2010: 3:45 PM CST

To active traders, the key price levels to watch on the S&P 500 are abundantly clear – but did you know there are two simple indicators that are revealing these levels clearly on the monthly frame?

Let’s take a look – first the standard Monthly SPX Chart:

I was working on the monthly timeframe for this week’s Weekly Inter-market Report for members when I saw something … strange.

Blog readers (and members) know that I use the 20 and 50 period EMAs along with the 200 period SMA on all timeframes – the monthly is no exception.

So I was a little impressed to see the market contained roughly within the boundaries of two of these key moving averages – can you see them above?

Here – let’s strip all the rest of the ‘stuff’ off the chart to get the clearer picture:

The chart above zooms in the action and focuses only on the 50 month EMA (blue) and 200 month SMA (red).

With the exception of the July ‘nip’ under the 200 SMA, price has remained well-contained within these boundaries over the last four months.

And if we take out the little ‘nip’ above the 50 EMA that made the fateful April high (before the crash), then we have the market successfully ‘trapped’ between the boundaries of these averages since breaking above them in September 2009.

Fascinating.

Ok – at least fascinating to me, a chart-junkie.

Going into 2010, price bounced down from the 50 EMA then bounce up off the 200 SMA, and then recently we’ve seen that pattern continue.

Now, this can’t keep going on forever, of course.  Price WILL break one way or the other above the 50 EMA or beneath the 200 SMA.  It’s just a matter of time.

But for now, it is interesting and perhaps a reminder of the importance of moving averages – they’re not magic, but they do give key levels to watch as reference points.

What could be easier than moving averages… other than price itself (meaning key short-term price resistance at 1,130 and support at 1,040)?

Corey Rosenbloom, CMT
Afraid to Trade.com

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

2 Comments

2 Responses to “SPX Monthly Levels and the Magic Indicators Revealing Them”

  1. dumbpainter Says:

    wait 'til it death crosses…that's sell to whom time.

  2. Terlyn12001 Says:

    I have been watching this monthly consolidation. It takes a shape that often, but not always, comes before a down move…I call it the snakehead. That's why I think identifying the EW count is key, but I don't know what it is.