Test of the 50-day moving averages
The 50-day moving average indicator is a popular and commonly used technical indicator for traders and investors. By averaging the previous prices, it smooths the fluctuations, allowing for discernable trends and potential support and resistance zones.
A rising moving average hints at an uptrend. A declining moving average warns of a downtrend. The 50-day ma indicator conveys a medium-to-intermediate term trend, while the 200-day ma indicator depicts a longer-term trend.
Because many retail and professional traders deploy the 50-day ma, the technical signals can influence near-to-medium-term trends.
General interpretations: (1) Trading above the 50-day moving average is typically bullish, (2) Below the 50-day moving average is typically bearish, and (3) In a rising trend, a successful test of the 50-day ma can lead to the next near-to-medium term rally, (4) Failure to convincingly clear above the 50-day ma warns of the next downtrend, (5) Breakdown below the 50-day ma is typically bearish, and (6) Breakout above the 50-day ma is a bullish development, near-to-medium term.
Traders and investors tend to deploy moving averages for two primary purposes. (1) Determine the integrity and sustainability of the trend, and (2) identify potential support and resistance levels.
The area residing along the 50-day moving average often acts as a barrier. A moving average resembles a brick wall. It does not easily break as prices bounce from support during primary uptrends. Prices tend to falter near these resistance areas on oversold rallies in primary downtrends.
For instance, after a breakout above the 50-day ma, the 50-day ma trendline offers solid support on pullbacks as buyers that missed the previous breakout returns, resulting in the resumption of the uptrend.
Conversely, after a breakdown below the 50-day ma, the 50-day ma trendline can act as formidable resistance on subsequent oversold rallies as sellers look to exit positions.
The convergence between the 50-day and 200-day moving averages can signal a trend change. SPX and major US stock market indexes are nearing inflections as they challenge their respective 50-day moving averages. The 10/13/22 oversold rallies must convincingly clear above the 50-day moving averages to extend the recoveries toward pivotal resistance at the 200-day moving averages and Nov 2021/Jan 2022 primary downtrends. Repeated failures to clear the moving averages can lead to the resumption of the primary downtrends.
Enclosed is a chart identifying key resistances and supports for SPX, INDU, NYA, COMPQ, NDX, MID, SML, and IWC.