Bounce off the 50 Anatomy

The drop right after the June 10th FOMC meeting was fairly obvious for me to see and Moxie subscribers were able to take advantage. We took off most long positions and then went long UVXY for some insurance which turned out to pay handsomely. The market is now testing that low again, but this time the Daily 50 SMA is involved. 

What does this mean and where do we go from here? Typical price action would suggest that the SPY should bounce off its Daily 50 SMA since the moving average is in an uptrend. The detail of this situation is that price doesn’t have to EXACTLY bounce off the 50. Price can drop down through the 50 SMA for a moment, reverse, and resume the uptrend and it would still be a valid “bounce off the 50”. Price could also push sideways through the 50 SMA for a while, lift, and get back on top of the moving average and still be a valid “bounce off the 50”.

So if there are multiple ways for price to bounce off the 50 SMA, then how do we know which way it will be and when it will be? For me, that answer lies within the lower time frames where I can see price action more precisely.  Generally, as long as price is under the hourly 50 SMA and the Moxie Indicator is below the zero line, there is no long setup. I can even look down on the 15-minute chart and see if things are looking really ripe or if price is likely to keep meandering. 

Right now, as long as price is generally guided down by the Hourly 50 SMA, price is likely to move sideways to lower. If this persists for a few more days, then price will begin to push through the Daily 50 SMA. It’s not until I see price get back over and then follow the hourly 50 SMA up that I would then begin to say the act of “price bouncing off the Daily 50” has begun. 

We have no idea exactly how this will unfold, but I often describe price movement in terms of a snake. If the snake wants to go someplace, it’s head must go there first and the body will follow. The hourly chart would be the head of the snake compared to the Daily chart being the body. So to make this as simplistic as possible, if Hourly price is still under the 50 SMA, then the Daily price (body) will continue to move down. The only way that the Daily chart will start its bounce off the Daily 50 is when the Hourly (head of the snake) turns the 50 SMA into support and uses it to start the next new uptrend.


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