Using the Declining 200-day MA for Short-term Bounces

• John Lee
• September 3rd, 2010

During this neutral range, we’ve seen many taps on/at/around the 200-day (mostly misses).

From June till now, there were two periods where the 200-day MA curved lower. The first occurred from 6/30-7/9. The second occurred from 8/25-present.

During the first time, prior to the ‘big’ day, the 200-day MA curved lower for four days. The 200-day MA continued to decline for another three days before going positive again.

During the second time, prior to the huge gap up, the 200-day MA curved lower for five days. We have yet to see the results for this move.

In both instances, the 200-day MA marked a negative slope for several days prior to a major move higher. Now, as technical analysts, we all know that a declining 200-day MA is very much long-term bearish, but as evidenced, we could use this for future potential short-term bounces.

The orange box on the data indicates the closest move to the 200-day prior to a pullback (the market eventually reached the 200-day MA several days later). We may be in that situation right now.

Despite how flat and boring the 200-day MA is, it proved to be useful in anticipating short-term bounces. It continues to remain important as we are very close to the 200-day MA once again.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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