The Importance of the 20-Day Moving Average

I'm a HUGE fan of the 20-day exponential moving average (EMA).

When we're trending higher, the 20-day EMA tends to provide excellent support and when we're trending lower, that same moving average can provide very difficult headwinds. Let me give you an example of what it looks like on the benchmark S&P 500:

When we begin trending higher, I look for two primary resistance levels. First is the 20-day EMA and second is price resistance - thinking about the principle of broken price support becomes price resistance. That's what I use those horizontal lines for. Friday's close cleared both price resistance (from earlier broken price support) and the 20-day EMA. We do still have a series of lower highs and lower lows and that wouldn't be broken until the early-June high just beneath 4200 is cleared. We have much work to do, but a bottom certainly may have been put in place a little over a week ago - as I declared.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.