Triple Index Daily EMA Reference Levels to Watch May 11

On a stellar recovery after last week’s sharp crash, all three main US Equity indexes are testing their (now) declining 20 and 50 day EMAs.

Let’s take a quick index fly-by of these daily chart reference prices to watch on the Dow Jones, NASDAQ, and S&P 500.

Dow Jones:

20 day EMA:  10,900
50 day EMA 1,0825

NASDAQ:

20 day EMA:  10,900
50 day EMA 1,0825

SP500:

20 day EMA:  10,900
50 day EMA 1,0825

I showed how the S&P 500 ‘respected’ moving averages in yesterday’s post “Market Shows the Benefit of Moving Averages” as reference levels.

These levels are great to watch for index futures and ETF traders, especially if we start to see negative divergences, bearish reversal candles, or some other sell-signal  form as we test these index price levels.

However, if buyers push through these index levels, the opposite play sets up – Popped Stops.

Once a level is broken, we can get a nice ‘positive feedback loop’ develop where intraday (and even swing) traders who are short are forced to then cover (buy) as their stop-loss orders are hit when price rises above a level they thought would be resistance.

The positive feedback loop continues when buyers put on positions once a resistance level is broken, as they play for a breakout (and to capture profits from some of the bears/short-sellers who are trapped).

Watch these levels closely through the rest of the day and week.

Corey Rosenbloom, CMT
Afraid to Trade.com

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