Pullback, Shakeout, or Crash?

LARGE SUPPORT

Many people see the market as collapsing today. But if you look carefully, something else may be happening. Price may be sucked downward by something powerful. On the daily chafrt of the S&P 500 index below, the green line is the 100 day moving average. Why would that suck the price downward? because large institutions see value there. Proprietary trading firms, hedge funds, and institutions see orders there. So do their black boxes. If they get get other investors to sell to them on the way down, they can hit the flurry of buy orders that sit near that line, buying at the bottom.

Market correction




EVEN LARGER SUPPORT

Below is the weekly chart of the S&P 500 index below, the yellow line is the 20 week moving average. This support level is even stronger, because longer term investors and large players place their bets there as well. These are the institutions that trade on weekly, monthly, or even yearly time frames. And they place really large bets. Notice price is so close to both the 100 week moving average and the 20 week moving average? Price stopping a descent just short of these two as it closed today is typical. The large players tend to bounce price off these levels as they sell to poor people and buy at the bottom where the orders are. A typical move would be for the futures to touch these levels pre-market open, thebn off to the races. or, they may have dumped all their supply and they’ll just plain gap up in the morning.

day trading


DISCLAIMER: The examples above are given as demonstrations of technical analysis and are therefore hypothetical and not actual trades. They do not represent actual account results nor include the entirety of all predictions we make.

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