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
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