Since the start of June, the S&P 500 has raced back up to its 200 day moving average. Traders should watch this level for hints of higher volatility or even a short term reversal.
For those who are not familiar with the 200 day moving average:
…when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.
Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.
If the S&P 500 can make a clear break above the 200 day moving average, then it is a signal that traders are becoming bullish and feel that Europe’s problems are being resolved and that the markets are now focusing on the Fed’s rumored extension of “Operation Twist”.