Nasdaq Back Above 50-day SMA - Bull Trap or Buy Signal?

May 23, 2014

On Thursday the Nasdaq Composite (^IXIC) closed back above the 50-day SMA for the first time since April 4. Is this bullish or a bull trap?

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Since the 2009 low the Nasdaq hasn’t spent much time below the 50-day SMA. In fact, there were only four instances where it traded below its 50-day SMA for more than 30 days.

The prior three occurrences are highlighted in the Nasdaq chart below. To be specific, the blue boxes show the time spent below the 50-day SMA including the first day back above.

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All three times saw an almost immediate pullback followed by higher prices. Twice the Nasdaq tested the prior low.

However, today the Nasdaq closed above 4,180. This invalidates a near-term bearish technical formation and allows for higher prices.

Perhaps more important than the 50-day SMA is an indicator that correctly signaled the 2000 and 2007 market tops. This trusty indicator is on the verge of boasting another sell signal. Are the implications the same as in 2000 and 2007?

More details here: A Look at the Risk Off Gauge That Correctly Signaled the 2000 and 2007 Tops

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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