September 14, 2009: The S&P 500 has neared resistance on a moving average that has held true for over 20 years. We could see a reversal at resistance or the index has to break out of the moving average to go higher.
We use a simple moving average set a key Fibonacci number of 78.6 on a weekly chart. The MA has worked as excellent support and resistance in the past. If you look a the chart below you’ll see that during the bull run which ended in 2000 prices never closed below moving average. Prices did pierce the MA, did not close below it.
In the subsequent bear market that ended in 2003, prices never rallied above the MA. During the bull market that began in 2003, once prices went above the MA, it never closed below it till the bull market ended. After the market turned bearish in 2007 you will notice that the S&P 500 treated it as resistance once and then collapsed. Now prices are nearing the moving average again, which could act as resistance.
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