The stock indexes fell back again today. The chart to the left is the S&P 500 etf. You can see that the bar yesterday (Tuesday) ran right up to the longer term moving average. In fact that moving average stopped prices almost to the tick. It was nearly identical with the Nasdaq 100. It is really amazing how this moving average combination can track trend and offer meaningful support and resistance levels. The moving average is the Mesa Adaptive Moving Average, (scroll down to MAMA) or more commonly known as MAMA. It was written by John Ehlers (see reference for link to his web side) and I have not changed the parameter settings that he came up with. I have been showing this same moving average on most of my charts for over a year. I’m sure many other types of moving averages, with various lookback periods, would show similar support or resistance at various times on various markets. It is easy to become fooled by randomness. It might very well be that prices on the S&P and Nasdaq both stopped the recent rally right to the tick at the moving average were both random events. I just know from following this trending indicator for a very long time that it offer signals far better, at least in my opinion. than standard simple or exponential moving averages. The code is widely available. In TradeStation it is in the forum as well as other sites that a quick Google search will show. It is also a standard indicator on Ninja Trader, using the same settings. It is hard to imagine trading without it. Perhaps I should do an article on it, but there is much information on the internet. I think this chart says more about the current market condition than anything I can add. The only positive I can see is that there could be a good buy divergence coming in if the low of four days ago is tested and it holds and again rejects the lows, preferably with a momentum divergence. Momentum has turned down from near the overbought level, but with sentiment so negative, it could be dangerous going short from these levels, unless one is very nimble. These large and fast bars make good trade location difficult to find.
Here is a funny video that really explains how the markets work. I was recorded over a year ago, but really is a good explanation of the current financial mess. Click this link and press the play button. It is about eight minutes long.