This article was originally published on Opto – Understand What Really Moves Markets.
Dow Jones [DIA] sits alone under the 50-day moving average, while the Russell 2000 [IWM], Nasdaq 100 [QQQ]and S&P 500 [SPY] cleared Friday’s highs and remain above their 50-day moving averages (50-DMAs).
Though only the Dow Jones ended under the 50-DMA, it still had an inside day which shows digestion of its current price area.
This is a hopeful sign for Tuesday compared to where the market left off on Friday of last week, as not only had the Dow Jones broke its moving average (MA) but the S&P 500 had as well.
If both had continued to head lower, a small correction could easily escalate to a bigger correction.
This does not mean we should let our guard down, but it does show that the market is holding its bullish phase.
We define a bullish phase by the location of price compared to the major moving averages.
For instance, bullish phase criteria is created when the price of a security is over the 50-DMA and the 50-DMA is over the 200-DMA.
The next phase where the Dow Jones currently sits is the caution phase.
This means the price is under the 50-DMA while the 50-DMA is over the 200-DMA.
Friday’s close had us concerned because of where the prices closed relative to the 50-DMAs.
If today had closed red, then that would have been a good sign to keep a close watch and take some risk off the table.
Furthermore, high yield corporate bonds [JNK] closed over its 50-DMA which indicates investors and the government are still supporting the risk on environment.
At least for now… stimulus is key.
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