Expect More Back-and-Forth Action

If history is any guide, then expect more volatility. In the past, when the S&P 500 (SPX) has fallen under its 200-day simple moving average, the resulting action has been some volatile back-and-forth moves around the average. I've put white circles around the occurrences we've seen since the turn of the century.

SPX, 200-Day SMA StockCharts.com View Chart » View in New Window »

On the positive side, we see that falling below the 200-day SMA isn't a kiss of death. On the negative side, traders may need to take smaller-position sizes and widen stops a bit as to avoid being shaken out of a position too easily. One other important note is that the first move below is rarely the only move below, so while we may be celebrating today's rally, I wouldn't be surprised in the least to see us take at least one more trip below the 200-day SMA, even if we ultimately are going to move higher....265 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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