Surging Toward the 200 day SMA Target

As was generally expected, the market retraced higher after several down-days in a row took price to a key monthly support level (1,825).

Let’s look at the current S&P 500 and Dow Jones charts and highlight the surge back to the underside of the broken 200 day SMA:

On the breakdown under the confluence of the 200 day SMA and the August price low with the 1,900 “Round Number,” the S&P 500 collapsed into a vacuum of buying until bulls supported the market aggressively off the 1,825 target.

Now, we see a logical bullish price pathway surging higher toward the underside of the 200 day SMA and this same confluence.

It should be our focus for planning the next swing in the market into next week.

Quite simply, a trigger-break above this level that continues above 1,910 suggests the index will continue a rally toward the 1,945 level (green highlight).

However, this is an inflection point to be monitored to determine if sellers once again strike the market into a critical resistance level.

We’ll treat it similarly on the upside (testing resistance) as we did on the downside (testing support).

The picture is similar in the Dow Jones Industrial Average:

We have a wider “Neutral Zone” for the Dow and it extends here at the 16,400 prior spike low from August into the 16,600 level which is roughly the 200 day SMA.

When price breaks through a key support or resistance level, it often comes back to test (or touch) the level to determine the supply/demand relationship.

Will sellers once again liquidate into resistance as they did on the break… or will buyers overcome the selling pressure to trigger a breakout and thus likely “short squeeze” above resistance?

That’s the question we should be asking without bias as price returns to a key decision point on the chart.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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