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Holy Grail or Holy Fail?

Mar 13, 2014 11:41 am Print Print

The SPX and the RUT rebounded yesterday after testing their 20 DMAs for the first time since the early February lows.

Many traders watch the 20 DMA for its effectiveness in defining short-term support in persistent advances; hence, the strategy has acquired the name, Holy Grail on the Street.

This is the normal expectation in an ongoing bull market that is set to see new highs.

In other words, if new highs are directly ahead, the presumption is it would do so from yesterday's reversal.

However, not all Holy Grail setups are created equal.

The SPX and the RUT both registered square-outs at their highs. Both indices left large-range reversal days to the downside on Tuesday.

Both indices have turned their Daily Swing Charts up this morning and dipped into the red. Of course, they may turn back up from this intraday give back into yesterday's range.

However, if the SPX and RUT should snap yesterday's lows and their respective 20 DMAs in the process, it will be a conspicuous change in behavior and could indicate a Hook, Line, and Sinker sell signal: a hook up in the dailies, a stab down, and a sinker or large sell day following the stab down.

SPX Daily Chart with its 20 DMA from February:



RUT Daily Chart with its 20 DMA from February:

Positions in SPXS, SPY

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