The Interplay with the 200 Day SMA

Mar 16, 2016: 12:20 PM CST

For traders, sometimes simple indicators or strategies trump complex ones.

Right now, the S&P 500 is once again interacting with the falling 200 Day SMA Target.

Let’s highlight what’s happened previously and what the plan is currently for the S&P 500, Dow Jones, and NASDAQ:

In each chart I highlighted the red 200 Day Simple Moving Average (standard indicator).

We often plan our trades – or strategies – in terms of price moving “toward” or “away from” key levels.

In this case we’re using a simple indicator as our planning parameter.

July and August 2015 saw price “play with” the up-side of this indicator, bouncing “up away from” it on each support est.

August saw the breakdown and collapse of the market “down away from” this indicator which was similar in January 2016.

Like October 2015, February and March saw a successful swing-trade play “up toward” this level which is where we begin.

The falling 200 day SMA for the S&P 500 is the 2,020 (2,018) index level and we’ve seen three days of downside indecision (narrow range days) beneath this wall of resistance.

In simplest terms, a firm breakout higher likely propels the market through 2,025 toward 2,080 like late October and early November 2015.

However, a failure here – and downward swing – likely takes the market lower toward 1,965.

We’ll use the same simple unbiased “IF/THEN” Logic for the Dow and NASDAQ below:

Unlike the S&P 500, the Dow Jones Industrial Index is slightly above its falling 200 day SMA at 17,140.

We’re using 17,000 and 17,250 as a “neutral decision zone” and will look for any pullback beneath the 17,140 level.

If so, it opens a downward swing “away from” the 200 day SMA.

Similarly, continued upside action – like October 2015 – opens a short-term “short-squeeze” bullish play.

The NASDAQ shows relative weakness to the Dow and S&P 500 because price is beneath this same indicator.

The interplay with the NASDAQ occurs near 4,750.

We can see how price interacted with this red 200 day SMA through 2015, serving both as support and resistance.

Once again, short-term swing trades are placed in the context of price moving “toward” or “away from” this level.

Whatever other indicators and strategies you’re using, take a moment to frame the market in terms of the “Interplay with the 200 Day SMA.”

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Corey Rosenbloom, CMT
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