When using moving averages on a chart to find possible targets and support levels, which exact moving average setting should you use?
How about more than one?
The “Moving Average Cluster” charts help answer this question by finding overlapping price levels where more than one moving average meets.
Let’s see these charts of hidden support levels revealed on the US Equity Indexes:
These charts use color-coded moving averages of similar values to highlight very short-term (blue), intermediate (around the 50 day SMA) term which is green, and finally a longer term like the 200 day SMA (red).
We’re looking for areas of crossovers or overlap to pinpoint ‘hidden’ levels that aren’t evident by viewing a single moving average setting as we would on a normal chart.
Quickly, we see that the current overlap occurs at the 1,974 level for the S&P 500 which is where we’ll keep our focus on any additional pullback.
Notice also how price (the blue averages) has a recent pattern of breaking under the intermediate averages (green) before continuing the rally.
Since late 2012, price has not traded under the longer-term red averages.
Dow Jones Industrials:
The Dow Jones has a cluster near the 16,900 (round number) region.
Unlike the S&P 500, the Dow Jones (blue) has retraced back toward then rallied up off the longer term (red) averages.
Finally, the NASDAQ:
The NASDAQ cluster exists slightly above the 4,500 index area which will be our focal point.
Similarly, the NASDAQ has held strong and only retraced to the longer (red) averages once on the chart above.
While we could go into more detail, continue to focus your attention on these “hidden” clusters of support targets.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade