S&P and Nasdaq Technical Analysis: Do you believe that the price action in an instrument tells a story?
I believe that you have to believe in something. Belief is not just tied to things like religious faith (I believe in God), but to other things like marriage, driving is safe, and numerous other things in life.
For traders, a belief is that price action tells a story about buyers and sellers. I believe that is true because if the buyers are overwhelming the sellers, the price goes higher. Conversely, if the sellers overwhelm the buyers, the price goes down. That is a story that I truly believe in.
Now taking it a step further:
Do I believe the story that tools applied to the price action tell a story about buyer and sellers and also tell a story about bias, risk and targets. I would say, prove it to me.
In this video, I take a look at the S&P and the Nasdaq indices and not only look at the price action but also some simple technical tools like Moving averages and swing levels that tell a story about the buyers and seller and who is in control.
To better comprehend, understand that technical levels help traders answer two basic questions: Who has the advantage—buyers or sellers—and what would change that? A moving average smooths out price fluctuations, making it easier to identify the trend and levels where buying or selling may emerge. The price action and technical tools to the price action for the Nasdaq composite index and S&P index, demonstrates that dynamic.
- Nasdaq Composite: The 200-hour moving average—the green line on the chart above—has provided support recently in the Nasdaq index. In simple terms, buyers have stepped in near that line and helped push the index higher. As long as the price stays above it, buyers retain the advantage. To strengthen that advantage, the index needs to move above its 100-hour moving average at 26,332. Beyond that, the next target is the 26,707–26,788 swing area, a zone where previous price turning points could attract sellers. Moving above and staying above those levels would add to the bullish story. Falling below the 200-hour moving average would weaken it.
- S&P 500: For the S&P index, the price fell below its 200-hour moving average yesterday (more bearish) but found support at 7,617, the upper edge of a swing area (see yellow area and red circles on the chart below). Buyers then stepped in and pushed the price back above the 200-hour moving average, currently at 7,647. That recovery is encouraging for buyers, but they need to hold above that level to maintain the improved outlook. The next upside target is the 100-hour moving average at 7,702, shown by the blue line on the chart below. A move above—and the ability to stay above—that level would provide further evidence that buyers are gaining control. A move back below 7,647 would put the focus on support at 7,617 again.
For a beginning trader, the lesson is that technical levels provide checkpoints, not guarantees. Holding support gives buyers something to build on. Breaking above the next resistance level strengthens their case. Failing to hold support tells traders to reassess.
To uncover the secret to my belief in more detail, watch the video. Feel free to comment or click thumbs up if you like it.
This article was written by Greg Michalowski at investinglive.com.