Tuesday, November 8, 2011

200 MDA: Iron Bar or Paper Wall?

It was 70 degrees here today and just perfect out. have to appreciate a day like this well into November.

Joe Frazier
After it was erroneously reported before, Joe Frazier died today. The great former heavyweight champion lost his fight against liver cancer. In January I wrote a detailed recap of Frazier's epic first fight with Muhammad Ali, the "Fight of the Century::
From 1971: The Fight of the Century
Sad day.

200 MDA: Iron Bar or Paper Wall?
Today was another wild run as things looked pretty poor at the open, but then settled down. Later in day things took off again. It's very difficult to watch the daily action because of the volatility.

A key moving average for stocks is the 200 day (200 MDA). Some averages mean more to some people than others. I like to view the 200 day as a reflection of longer term price action. It's not the end of all discussion, but usually adds to the conversation.

Here is a daily chart for the SPY:
On October 27th stocks closed above the 200 MDA (yellow line), only to suffer a drop right back below over the next few days. Support was grabbed at the rising 20 day (green line). Today the close was just over the 200 MDA again.

Ideally for long setups the trip over the 200 day would have held up to a drop and that would have been support. As it just barley crossed it, that would have been a lot to ask. This is the second test of it. Will this be an iron bar that rejects stocks or a paper wall that can be pierced and held? Great question! I think it most constructive if stocks meander here or drop slightly (1%) to set up a more solid launching pad. Of course the market hardly ever does what anyone wants. Using the green channel drawn on chart will be the guide post for me.

I look at moving averages and many traders spend quite a bit of time on them. I am more apt to assign price action, volume, and price levels (white horizontal lines) more weight. As such, the 1230 level is still key to me on any downside.

I did open some positions today and may discuss later after the trades have developed.

Have a good night.

1 comment:

The Sovereign Bohemian said...

Glad you had some nice weather. You must have stolen it from here...rain mixed with snow and temps down around freezing tonight.

Too bad about Joe. When I was growing up, it was hard to tell who would be more entertaining, him, Ali, or Howard Cosell.

I'll have to check out your chart when it's not so late.